Fed Gets Hawkish
Following the FOMC’s final meeting of the year, they have issued a report that is much more aggressive on inflation than it has been in years.
They are looking at an accelerated end of bond buying and as many as 3 rate increases in 2022.
It’s what the Fed has been doing for years: Once wages for the bottom half start rising faster than those for the upper half, they take away the punch bowl:
Federal Reserve policymakers moved into inflation-fighting mode on Wednesday, saying they would cut back more quickly on their pandemic-era stimulus at a moment of rising prices and strong economic growth, capping a challenging year with a policy shift that could usher in higher interest rates in 2022.
The central bank’s policy statement set up a more rapid end to the monthly bond-buying program that the Fed has been using throughout the pandemic to keep money chugging through markets and to bolster growth. A fresh set of economic projections released on Wednesday showed that officials expect to raise interest rates, which are now set near-zero, three times next year.
“Economic developments and changes in the outlook warrant this evolution,” Jerome H. Powell, the Fed chair, said of the decision to pull back on bond purchases more quickly.
By tapering off its bond buying faster, the Fed is doing less to stimulate the economy with each passing month, and putting the program on track to end completely in March.
That would place Fed policymakers in a position to raise interest rates — their more traditional and more powerful tool — sooner. The Fed has made clear it wants to end its bond-buying program before it raises rates, which would cool off demand by making it more expensive to borrow for a home, a car or expanding a business. That would in turn weigh on growth and, eventually, price gains. The Fed’s new economic projections suggested rates, which have been at rock-bottom since March 2020, might rise to 2.1 percent by the end of 2024.
The Fed’s final meeting of the year completed its decisive shift away from providing full-blast support to the economy and toward guarding against the risk of rapid and lasting inflation. While officials spent much of the year laying out a patient path for weaning the economy off the Fed’s pandemic support, they have become more worried that a burst in prices this year could linger, resulting in a more proactive stance.
I do not think that this is the right decision, but I hope that I am wrong.