Fed Keeps Interest Rates At 0%, But Eyes 2022 Rate Hike
The Federal Reserve ended its September 22nd meeting by announcing that it will hold the federal funds rate at its target range of 0% to 0.25%.
This is until the labor market conditions show substantial progress and its long-term inflation outlook increases. However, it did signal that it will likely raise rates beginning in 2022, and there would perhaps be three more rate hikes in 2023.
“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the Federal Open Market Committee (FOMC) said in its statement. “The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery.”
Fed Makes A Plan For Economic Recovery
As the economy continues to improve, the central bank is preparing to adjust its monetary policy to end its economic stimulus later this year and begin raising rates next year. This is sooner than expected, as the Fed previously wasn’t predicted to raise rates until 2023.
“The job market has improved, inflation is running hot, and supply chain constraints are persisting,” said Mike Fratantoni, Mortgage Bankers Association (MBA) senior vice president and chief economist. “As a result, it is not surprising that the Fed will begin to remove accommodation. The biggest news out of this meeting was the change in FOMC projections, with most members now seeing a first interest rate hike in 2022, which is faster than many market participants had previously anticipated.”
The Fed pointed out that no decisions have been made but it predicts it will begin tapering its bond-buying by November or December and will end its economic stimulus programs by next year.
“While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” Federal Reserve Chair Jerome Powell said.
This decision could cause interest rates to increase even before the Fed raises the federal funds rate.
COVID-19 Could Change Economy’s Direction
Despite the positive outlook from the FOMC meeting, the Federal Reserve warned that COVID-19 and the spread of the delta variant could still influence economic growth and their decisions on interest rates.
“The path of the economy continues to depend on the course of the virus,” the Fed said in its statement. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”
The Federal Reserve is now looking at raising rates in 2022, and with tapering expected to begin later this year, interest rates will likely rise. Borrowers can take advantage of the current low rates by taking out a personal loan to consolidate other high-interest debt under one monthly payment.
Source: Fox Business