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Federal Reserve Will Likely Raise Rates

The Federal Reserve indicated Wednesday that it will begin making aggressive policy moves in an effort to combat rising inflation, according to CNBC.

What it’s doing: “For one, the central bank said it will accelerate the reduction of its monthly bond purchases. The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The Fed was tapering by $15 billion a month in November, doubled that in December, then will accelerate the reduction further come 2022.”

  • Afterward, in late winter or early spring, the Fed will likely begin raising interest rates.

Inflation outlook: The Federal Open Market Committee raised its inflation outlook for 2021 from 4.2% to 5.3% for all items and from 3.7% to 4.4% excluding food and energy.

  • “For 2022, the expectation is now 2.6% for headline and 2.7% for core, both up from September.”

Economic growth forecast: The committee reduced its prediction for economic growth in 2021 and now sees GDP rising 5.5% for the year rather than the previously indicated 5.9%. It also sees 2022 growth rising 3.8% rather than 4.0% and 2023 growth increasing 2.2% instead of 2.5%.

No more “transitory”: “For the Powell Fed, tightening policy now marks a dramatic pivot off a policy enacted just over a year ago. Known as ‘flexible average inflation targeting,’ [the policy] meant it would be content with inflation a little above or below its long-held 2% target.”

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