Federal Reserve officials on Wednesday sent a strong signal that they are almost ready to taper their bond-buying and said they expect to raise interest rates by late 2022, sooner than they had expected in June.
With inflation “elevated” and the labor market showing improvement, the Fed said that “if progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted.”
The Fed has been buying $80 billion worth of Treasurys and $40 billion worth of mortgage-backed securities each month since last summer to keep long-term interest rates low and spur demand.
Since the summer, the Fed has been talking about slowing down the purchases. The central bank has been guarded, worried there could be a repeat of the “taper tantrum” that roiled global financial markets in 2013.
The formal announcement could come at the November 2-3 meeting or December 14-15, economists said.
In updated projections, the Fed also penciled three interest rate hikes in 2023 and three more in 2024, bringing the benchmark interest rate up to 1.8% by the end of the period.
U.S. stocks gained and bond yields rose after the statement from the Fed. Powell will hold a press conference at 2:30 p.m. Eastern.