Tighter Credit, More Expensive Borrowing Could Be In The Offing With Fed Shift
WASHINGTON — In a dramatic change of policy, the Federal Reserve said Wednesday that it will accelerate its withdrawal from propping up the economy and likely will raise interest rates at least three times in 2022.
As recently as September, the Fed had projected just one rate hike and said it would continue monthly bond purchases for the foreseeable future. On Wednesday, the board said it may end those purchases altogether.
The first interest rate hike is expected to come sometime in the first half of next year.
Currently, the Fed’s key rate — the interest rate at which banks can borrow when they fall short of their required reserves — is pegged near zero.
That key rate helps determine what consumers pay for personal and business loans, car payments, mortgages and credit card debt.
But the impact is likely to be muted in the near term — the change in the key rate doesn’t force an immediate change in consumer interest rates — and even if the Fed raises rates three times as it is now projecting, all three combined are unlikely to rise above a fraction of 1%.
Earlier this month, in testimony before Congress, Fed Chair Jerome Powell had signaled a change of policy could be forthcoming due to rising inflation.
Previously, his position had been that the surge in inflation that began last summer was likely little more than a passing concern caused by supply bottlenecks and consumers eager to buy after doing without during the pandemic.
Overall, the changes announced Wednesday suggest the Fed is now less concerned about bolstering the labor market, and more with tamping down on rising prices.
The most recent report from the Labor Department had the nation’s jobless rate at about 4.2%. Meanwhile, consumer prices were up about 6.8% last month.
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