US Fed unveils most hawkish policy, doubles pace of scaling back bond buying

Federal Reserve officials have intensified their battle against the hottest inflation in a generation by shifting to end their asset-buying programme earlier and signalling that they favour raising interest rates in 2022 at a faster pace than expected. 

Heralding one of the most hawkish policy pivots in years, the US central bank said on Wednesday (US time) that it would double the pace at which it was scaling back purchases of Treasuries and mortgage-backed securities to $30 billion a month, putting it on track to conclude the programme in early 2022 rather than mid-year, as initially planned. 

Projections published alongside the statement shows that officials expect that three quarter-point increases in the benchmark Federal Funds Rate will be appropriate next year, according to the median estimate, after holding borrowing costs near zero since March 2020. 

“Economic developments and changes in the outlook warrant this evolution of monetary policy,” Fed Chair Jerome Powell told reporters during a post-meeting press conference on Wednesday. “The economy has been making rapid progress toward maximum employment,” he added. 

The quicker pullback puts Mr Powell in position to raise rates earlier than previously anticipated to counter price pressures if necessary, even as the pandemic poses an ongoing challenge to the economic recovery. The Fed has flagged concerns over the new Omicron strain, saying that “risks to the economic outlook remain, including from new variants of the virus”. 

The new rate projections mark a major shift from the last time that forecasts were updated in September, when officials were evenly split on the need for any rate increases at all in 2022. The new projections also show that policymakers see another three increases as appropriate in 2023 and two more in 2024, bringing the Fed Funds Rate to 2.1 per cent by the end of that year. 

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