US Fed signals bond-buying taper coming ‘soon,’ rate hike shifts to 2022



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US Fed signals bond-buying taper coming ‘soon,’ rate hike shifts to 2022

On Wednesday, the US Federal Reserve had cemented the way to downsize its $120 billion monthly bond repurchase program ‘soon’ and had hinted that a rate-hike might appear earlier-than-anticipated, as nine of eighteen Central Bank policymakers had forecasted that US Fed would require to raise its benchmark borrowing costs as early as by next year in order to address a sky-scrapping increase in inflation indicators.

Aside from that, latest statement from US Federal Reserve that followed a two-day long September policy meet, came into being as a hawkish transmutation into the Central Bank’s policy, which is now expecting a 4.2 per cent rise in core PCE (Personal Consumption Expenditure) prices, US Fed’s key gauge to measure inflation, by end-2021, more than double of its target rate of 2.0 per cent.

Besides, while the US Fed appears to be positioning itself to handle a longer-than-anticipated period of higher inflation, Chair Jerome Powell said in a press conference shortly after the Fed statement that the US Central Bank could round off a tapering of fiscal support by mid-2022 adding “a moderation in the pace of asset purchases may soon be warranted,” however, Fed’s Powell who had still been tilted towards a dovish monetary policy and expecting an ease in a blistering shoot-up in inflation indicators, did not illustrate any reference on how long a complete taper of bond repurchase program might take.

US Fed expects rates rising to 1% in 2023

Apart from that, the US Fed had kept its interest rate unchanged between 0.0 per cent to 0.25 per cent on September policy meet, but signalled that a rate-hike might appear as soon as by 2022, much-earlier than a prior projection of end-2023, while US Federal Reserve policymakers were expecting rate-hikes up to 1 per cent by 2023.

US Federal Reserve, in tandem, had forecasted its benchmark borrowing cost to rise up to 1.8 per cent by 2024, while the US Fed’s core inflation indicator would be allowed to charter marginally above its target rate of 2.0 per cent in the meantime, pointing towards a more patient approach as unemployment rate is expected to roll back to a pre-pandemic level of 3.5 per cent.

Nevertheless, although, the US Fed had acknowledged that a latest rise in delta cases might add to hindrances in economic recovery, the Central Bank’s policy-setting Federal Open Market Committee said in an unanimous statement, “Overall, indicators have continued to strengthen”.