Fed Ramps Up Tapering, Projects 3 Rate Hikes In 2022

The Federal Reserve maintained its target fed funds rate range of between zero and 0.25% but said it will be accelerating its monthly asset purchase tapering.

“In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities,” the Fed said Wednesday in a statement.

The Fed said vaccination progress will continue to reduce the impact of the COVID-19 pandemic, but economic risks remain for now.

The statement comes after the U.S. added 210,000 jobs in November, significantly short of the 573,000 jobs economists were expecting. Wage growth was up 4.8% in the month, and the U.S. unemployment rate fell to 4.2%.

All 11 Fed members voted unanimously to maintain current interest rates.

Related Link: 'A Shocking Number': Experts React To 6.8% CPI Inflation, Highest Since 1982

Economic Projections: The Fed has said it's taking a new “average inflation targeting” approach that may involve keeping interest rates near 0% for a while even though inflation levels have exceeded its 2% inflation target throughout the year. The Consumer Price Index (CPI) was up 6.8% in November, the highest inflation reading since 1982.

On Wednesday, the Federal Reserve released new “dot plot” economic forecasts. The Fed is now projecting three interest rate hikes in 2023. Five members now see interest rates topping 2.75% in 2024.

Federal Reserve members are projecting a 2022 U.S. unemployment rate of 3.5%, down from 3.8% in September. The committee’s 2022 GDP growth projection increased from 3.8% to 4%. The Fed’s 2023 GDP growth rate dropped from 2.5% to 2.2%. The Fed is now projecting 2022 PCE inflation of 2.6%, up from previous estimates of 2.2%.

Markets React: The SPDR S&P 500 ETF Trust SPY traded higher by 0.5% after the Fed announcement. The yield on 10-year U.S. Treasury bonds increased slightly on Wednesday to 1.462%, up 0.023% on the day.