Fed expects rate hikes to last until at least next year

Fed expects rate hikes to last until at least next year

by

One of these risks may be an increase in inflation.

Fed officials expect inflation to reach 2.4% this year, above the December estimate of 1.8% and slightly above the central bank’s target of about 2%.

The Fed also noted public health indicators, labor market conditions and financial market developments as potential risks in its statement.

The central bank kept interest rates unchanged in the range of zero to 0.25%.

Shares jumped briefly after the statement.

Investors are concerned that the full reopening of the economy will lead to an increase in consumer price inflation, which in turn will force the Fed to raise interest rates earlier than expected. Yields on Treasury bills have been rising in the context of this thesis, rising to a 13-month high of 1.67% on Wednesday.

According to the Fed’s consensus forecast – known as a dot plot – the central bank does not expect any increase in interest rates in 2021, but four Fed officials project higher interest rates in 2022.

But while inflation may be the bogeyman that haunts Wall Street today, higher consumer prices would come in the wake of a strengthening economy. Fed officials projected that the US gross domestic product, the broader assessment of economic activity, will increase 6.5% this year, more than the 4.2% projected in December. Meanwhile, the unemployment rate is expected to drop to 4.5% at the end of the year, compared to the previous forecast of 5%. In February, the country’s unemployment rate was 6.2%.

This is a developing story. Will be updated

.Source