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Fed policymakers see upward march in interest rates starting next year

September 22, 2021 by David Barret Leave a Comment

September 22, 2021

(Reuters) – Half of Federal Reserve policymakers now expect to start raising interest rates next year and think rates should rise to at least 1% by the end of 2023, reflecting a growing consensus that gradually tighter policy will be needed to keep inflation in check.

The swifter pace of interest rate hikes from policymakers’ last set of projections in June comes amid the fastest economic recovery in U.S. history after a brief recession last year and robust debate at the Fed about balancing its maximum employment and 2% average inflation goals.

The Fed on Wednesday kept its benchmark overnight lending rate in the current target range of 0% to 0.25%, where it has remained since March 2020 when the U.S. economy was buffeted by the onset of the pandemic.

The new economic projections released alongside the policy statement showed nine of 18 Fed policymakers now foresee a liftoff in interest rates next year, compared to seven in June. All but one saw at least one interest rate needed by the end of 2023, and nine saw the need to target rates at least as high as between 1% and 1.25% by then.

By 2024, the median rate forecast was for 1.8% – still below the 2.5% level they estimate neither stimulates nor restricts economic growth over the long run and therefore broadly accommodative of further job gains. That’s despite policymakers’ forecast for inflation to remain above the Fed’s 2% target through 2024.

Combined, it’s new fodder for understanding how the Fed intends to carry out its new policy framework, under which it will aim for inflation to remain moderately above its 2% target for “some time.”

U.S. gross domestic product at the median is projected to grow 5.9% this year and 3.8% in 2022, compared to forecasts in June of 7.0% in 2021 and 3.3% next year.

The unemployment rate is seen falling to 4.8% this year and to 3.8% in 2022.

The pace of price increases is expected to rise to 4.2% this year, higher than forecast in June, although Fed policymakers see it declining to 2.2% in 2022 and 2.1% by 2024.

(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Paul Simao and Andrea Ricci)

Source Link Fed policymakers see upward march in interest rates starting next year

David Barret
David Barret

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