DECEMBER 20, 2021 – FED OPENS THE DOOR TO A SPRING RATE HIKE
In a major policy shift, the Fed has recognized inflation is an issue and is likely to remain high; as such, they are ready to start raising rates in the spring. At the conclusion of their 2-day meeting, most of the Fed’s officials have tentatively scheduled three quarter-percentage-point increases next year. In contrast, in September, half the Fed officials felt rate hikes would not be warranted until 2023.
The Fed also approved plans that will more quickly taper back their covid stimulus policy, ending their asset purchases by March 2022 instead of June. This would allow for a rate increase to be announced at their March meeting. Fed Chair Powell said, “There’s real risk now, I believe, that inflation may be more persistent and … the risk of higher inflation becoming entrenched has increased.”
In their post-meeting statement, they said their first goal of 2 percent inflation has been met, but the second goal of maximum employment has not been, but they suggest this may be reached soon.
Based on the Fed’s intentions now would be a good time to reassess your hedging programs. There is an opportunity for you to hedge against the expectation of rising interest rates which could occur within three months.