Fed predicts rates could increase by next year – Riverside, California

Riverside, California 2021-09-22 16:27:41 –

Chair Jerome Powell said the Fed could soon announce a withdrawal of bond purchases at its next meeting in November.

Washington — Federal Reserve Board Chairman Jerome Powell said on Wednesday that the Coronavirus would start withdrawing special support released by the Federal Reserve Board as soon as possible after it paralyzed the economy 18 months ago. It signaled that it will be announced in November.

Powell said the Fed is likely to slow the pace of monthly bond purchases if the job market continues to improve steadily. These purchases are aimed at lowering long-term lending rates to facilitate borrowing and spending.

“If the economy continues to make great progress as expected, I think we can easily move forward at the next meeting,” the Federal Reserve Board of Governors said at a press conference in November.

At the same time, the Fed’s decision-making committee plans to start raising benchmark rates later next year, earlier than members expected three months ago, on Wednesday, which could continue to be high inflationary pressures. Showed that he was concerned. However, Powell emphasized that rate hikes will only occur after the Fed has finished buying bonds, saying the process is likely to continue until mid-next year.

In summary, the Fed’s plans reflect the belief that the economy will fully recover from the pandemic recession and will begin dialing back emergency assistance provided shortly after the pandemic. As the economy strengthens steadily, inflation has accelerated to 30-year highs, increasing pressure on the Fed to withdraw.

The retreat of bond purchases by central banks and their ultimate rate hikes mean that some borrowers will have to pay more for mortgages, credit cards and business loans each time they occur.

Equity and fixed income traders took the Fed’s message in a big way on Wednesday. The Dow Jones Industrial Average, which had risen more than 400 points before the Federal Reserve Board issued its policy statement, rose 338 points, or 1% altogether. Yields on 10-year government bonds remained almost unchanged at around 1.31%.

The economy recovered faster than many economists expected, but growth has slowed recently as the number of cases of COVID-19 surged and labor and supply shortages hampered manufacturing, construction and other sectors. .. The US economy has returned to pre-pandemic scale, and the unemployment rate has fallen from 14.8% immediately after the pandemic to 5.2%.

At the same time, inflation surged due to a shortage of semiconductors, automobiles, furniture and electronics, combined with a resurgence of consumer spending and supply chain turmoil. Consumer prices rose 3.6% from a year ago to July, according to indicators recommended by the Federal Reserve Board. This is the sharp rise since 1991.

In the updated quarterly forecast, Fed officials will raise key short-term interest rates once in 2022, three times in 2023 (one more than expected in June) and three times in 2024. I’m expecting it. Business loans have been fixed at nearly zero since the outbreak of the pandemic in March 2020.

The central bank began declining $ 120 billion a month in government bond and mortgage purchases last year after the economy made “substantial further progress” towards the Fed’s goals of maximum employment and an average annual inflation rate of 2%. It suggested that there was a possibility of doing so. ..

In a statement released after the two-day meeting, the Fed said, “If progress continues largely as expected, the Commission will soon justify a slowdown in the pace of asset purchases. “.

Inflation has risen enough to meet the Fed’s test of substantial progress. And Powell said at his press conference that in his view employment “almost passed” the test.

The Federal Reserve Board has not hinted at how quickly it will taper purchases. However, it is widely expected to reduce government bond purchases by $ 10 billion a month and mortgage-backed securities by $ 5 billion.

Powell reiterated his belief that current high levels of inflation will decline as the economy normalizes, partly because the central bank is not yet close to raising rates. I am. However, changes in the Fed’s interest rate forecasts suggest that the Fed is gradually approaching that. In March, 18 officials on the policy-making committee predicted that they would not raise rates until after 2023. In June, the Commission revised its forecast to raise rates twice in 2023. Like next year.

In the latest forecasts, policymakers also show that this year’s economic growth is expected to grow slowly from the June forecast of 7% to 5.9%. Inflation is expected to be 4.2% by the end of this year, but next year’s inflation forecast has been raised from 2.1% to 2.2%.

Powell too Address major ethical issues Surrounds the investment and transactions of some federal regional bank governors. Federal Reserve Bank of Dallas Governor Robert Kaplan said in 2020 millions of dollars worth of individuals such as Amazon, Chevron, Facebook and Google, while the Federal Reserve is taking special steps to boost the economy. The financial disclosure revealed that it had traded shares. ..

Last year, Boston Fed Governor Eric Rosengren invested in a real estate investment trust holding mortgage-backed securities of the type purchased by the Fed as part of an effort to lower borrowing rates. And Powell himself owns municipal bonds, which the Fed bought for the first time last year to support the market.

A spokesman said last week that the Fed had a “fresh and comprehensive view” of the rules surrounding public servants’ financial holdings. Investing is permitted under the Fed’s current rules, and Rosengren and Kaplan have promised to sell their shares and reinvest their earnings in index funds and cash.

When asked about this topic at a press conference, Powell said: This will be a thorough and comprehensive review. We collect all the facts and consider ways to further strengthen the rules and standards. “

As growth and inflation are recovering in many countries, the Fed’s expected policy changes will follow similar steps by other central banks in the developed world.The European Central Bank said Early this month I haven’t said it will completely end bond purchases, but it will reduce bond purchases. Central banks in Canada and Australia have also curtailed bond purchases.

APEconomics writer Martin Crutsinger contributed to this report.

Fed predicts rates could increase by next year Source link Fed predicts rates could increase by next year

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