Fed hints at rate hikes in 2023 amid recovery from COVID-led downturn

Jun 17 , 2021. 2 hours ago – 08:12 KYODO NEWS

The Federal Reserve building is pictured in Washington on April 28, 2021. (Kyodo) ==Kyodo

WASHINGTON – The U.S. Federal Reserve on Wednesday indicated it will start raising interest rates in 2023, earlier than previously expected, amid anticipation of price hikes and expansion of job opportunities on the back of a strong recovery from the coronavirus pandemic-triggered downturn.

After a two-day meeting of the policy-setting Federal Open Market Committee, the central bank decided to leave its easy monetary policy unchanged to support the recovery, maintaining its target range for the federal funds rate at 0 to 0.25 percent and continuing to buy $120 billion in Treasury bonds and other assets each month.

Of the 18 policymakers, 13 projected there will be interest rate hikes in 2023 or earlier, compared with seven in the previous estimate in March. Seven of the 13 expected interest rate hikes in 2022.

The median expectation among the 18 Fed board members for year-on-year growth in real gross domestic product in the October-December period was 7.0 percent, up from 6.5 percent in the March forecast.

The median estimate for inflation for the same quarter, gauged by the price index for personal consumption expenditures, was 3.4 percent, up from 2.4 percent in the previous estimate and eclipsing the central bank’s goal of 2 percent.

But the steep uptick in inflation is expected to be temporary as Fed policymakers mostly anticipate the inflation rate to be around 2 percent in 2022 and 2023.

The U.S. economy appears to be returning to normal with a majority of the adult population having received at least one shot of a coronavirus vaccine.

Noting that progress on vaccinations has reduced the spread of the novel coronavirus in the United States, the Fed said in a statement, “The sectors most adversely affected by the pandemic remain weak but have shown improvement.”

“The path of the economy will depend significantly on the course of the virus. 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 statement added.

The Fed has said the current pace of asset purchases will continue until it sees “substantial further progress” toward policy goals.