The Federal Reserve on Wednesday kept borrowing costs at near-zero percent but will now stop buying bonds three months earlier than initially planned, steps that will ultimately accelerate the end of economic stimulus and lay the groundwork for three possible rate hikes next year.
Beginning in January, the Fed announced that it will trim its monthly Treasury and mortgage-backed security purchases by a cumulative $30 billion a month, up from the $15 billion plan that officials set just last month. The new pace means the U.S. central bank will no longer be buying bonds by March 2022, rather than by June 2022.
- The Fed will reduce how many bonds it’s buying each month at twice the speed: $30 billion a month, versus the $15 billion originally announced in November.
- Fed pencils in three rate hikes for 2022 and three more for 2023.
- Officials scratch the phrase “transitory” when describing inflation, now saying price pressures have “exceeded” the Fed’s average 2 percent inflation target “for some time.”
What it means for: Mortgage rates | Savers | Borrowers | Investors
“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” the Federal Open Market Committee (FOMC) said in a key change to its post-meeting statement, striking the phrase that recent rapid price gains are seen as “transitory.” “With inflation having exceeded 2 percent for some time, the committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”
The Fed propped up the U.S. economy in the aftermath of the coronavirus pandemic with ultra-low borrowing rates and massive asset purchases. The moves have helped keep the financial system awash with cheap credit during the worst recession in a lifetime. For consumers, that’s been most recognizable by some of the lowest mortgage rates in history.
Officials planned to keep aggressively supporting the economy as millions more Americans jumped back into the labor force and found employment again. Yet, consumer prices in 2021 have soared at the fastest pace in nearly 40 years, and the Fed’s preferred inflation tracker rose by the most since the 1990s.
Those price increases haven’t just sped up — contrary to what officials expected back in early 2021 — but have also broadened out to more categories than just the pandemic-impacted services and products. That’s made justifying the most aggressive easy-money policies in history an uphill battle for officials, who are now …….