Fed sees three rate increases in ’22 as inflation battle begins

U.S. central bank drops reference to inflation as ‘transitory’

The Federal Reserve, signalling its inflation target has been met, said on Wednesday it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate increases by the end of 2022 as it exits from policies enacted at the start of the health crisis.

In new economic projections released following its policy meeting, Fed officials forecast that inflation would run at 2.6% next year, compared with the 2.2% projected in September, and the unemployment rate would fall to 3.5% — near if not exceeding full employment.

Officials, at the median, projected the Fed’s benchmark overnight interest rate would need to rise from its current near-zero level to 0.90% by the end of 2022. That would kick off a raising cycle that would see the Fed’s policy rate climb to 1.6% in 2023 and 2.1% in 2024 — nearing but never exceeding levels that the Fed would consider restrictive of economic activity.

It is, in outline, the “soft landing” that Fed officials hope will transpire, with U.S. inflation gradually easing in coming years while unemployment remains low in a growing economy.

The timing of the first increase, the central bank said, would hinge solely on the path of a job market that is expected to continue improving in coming months.

Dropped from the policy statement was any reference to inflation as “transitory,” with the Fed instead acknowledging that price increases had exceeded its 2% target “for some time.”

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