Federal Reserve Signals Three Interest Rate Hikes Possible in 2022

(PatriotWise.com)- Amid skyrocketing inflation, the Federal Reserve last week signaled a hawkish pivot with officials indicating that they may raise interest rates at least three times in the coming year.

During its meeting last week, the Fed said it plans to bring to an end its pandemic-era bond purchases by March of 2022, paving the way for three quarter-point interest rate increases next year. Currently, interest rates have remained near zero.

This is a significant about-face from September when nearly half of Federal Reserve officials believed interest rate hikes wouldn’t happen until 2023.

The move comes as the Federal Reserve is facing increased political pressure over persistent, skyrocketing inflation.

However, given the uncertainty of the Omicron variant of COVID and the potential government response, the Fed may not follow through on its plans to combat inflation by raising rates.

According to Bankrate chief financial analyst Greg McBride, Omicron is a “wild card,” not just for Fed policy, but for the overall economy. It is still too early to say if the new variant causes more economic fallout, McBride explained, and until there is “greater clarity” on Omicron, the Federal Reserve has left itself room to change course if necessary.

At the same time, McBride said, last Wednesday’s Fed statement had “a more hawkish tone” than previous ones.

In the new economic projections released by the Fed after its two-day policy meeting last week, the central bank forecast that inflation would run at 2.6 percent in 2022, up from its September forecast of 2.2 percent. The Fed also predicted that the unemployment rate would fall from the current 4.2 percent to 3.5 percent next year, and any rate hikes in 2022 would depend on the job market.

In its statement on Wednesday, the Federal Reserve said with inflation over 2 percent for some time, the central bank “expects it will be appropriate to maintain” near-zero interest rates until the job market returns to full employment.

However, the Federal Reserve has begun to settle on how it plans to “normalize” monetary policy after nearly two years of unprecedented monthly bond purchases enacted to help the economy through the fallout caused by the government’s COVID pandemic response.