September 27, 2021 — The Fed Signals Timing of Future Rate Hikes


At their meeting last week, the Federal Reserve signaled it could raise rates by 6-7 times by the end of 2024.  They are optimistic the covid pandemic will abate and the economy will improve substantially over the next few years.   They are still holding rates at zero for now, but are talking about rolling back on their asset purchase program.

From the start of the pandemic, the Fed has been buying $120 billion/month in US treasuries and mortgage-backed securities.  But if the economy makes “substantial further progress”, the bank will feel comfortable slowing down the purchases.  The Fed meets two more times this year, on November 2-3 and in mid-December. 

The FOMC committee is split on raising rates in 2022, with 9 members expecting no rate increases and the other 9 expecting one.  By the end of 2023 they project 3 to 4 hikes, and a total of 6 to 7 through the end of 2024.  Earlier rises in rates go hand in hand with higher inflation expectations.  The Fed is hoping the unemployment rate will fall to 3.5 percent by the end of 2023, equaling the pre-pandemic low.

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