June 21, 2021 — Fed Signals Its Open to Raising Rates in 2023


Policy makers signaled Wednesday they now expect to raise rates by late 2023, sooner than previously indicated.  At their monthly meeting, the officials discussed a tapering of the bond purchase program as well.  They anticipate the benchmark rate to be at 0.6% at the end of 2023, it is zero now.   

The Fed has recently seen higher inflation than it expected, and the policy makers need to be ready to react.  It will take many meetings to set out plans for the slowing of its bond purchase program.  The Fed has stated bond purchases will continue until “substantial further progress” has been made in the recovery. But a much stronger economic rebound and hotter inflation is soliciting the change in plans. After the meeting, 13 of 18 voting members said they expected rates to rise by late 2023, up from seven in March. Seven officials expected rates to rise by end 2022, up from four in March.  Nobody sees rates rising this year.

The other wild card is jobs. The Fed has said they are looking for full employment, in conjunction with inflation, to lift rates.  The policy makers have become less confident all the jobs lost during the pandemic can be recovered without prompting inflation.  Labor force participation is down from early 2020, but an aging population may be a factor as people accelerated their retirement.  Officials left their forecast for unemployment for Q4 2021 at 4.5%, it is currently 5.8%.