Prepare for liftoff: Fed signals rate hike could happen ‘soon’ | Business and Economy News

[ad_1]

Fed leaves interest rates unchanged, says a rate hike will ‘soon be appropriate’.

The steward of the United States economy, the Federal Reserve, left interest rates unchanged at the end of its two-day policy-setting meeting on Wednesday, but it did prepare the ground for its first pandemic interest rate hike, saying it “will soon be appropriate” to do so.

“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Federal Open Market Committee said in its post-meeting statement.

The Fed said it will continue to taper its bond-buying, bringing those purchases to an end “in early March”. The FOMC also noted in its statement the impact the Omicron variant of COVID-19 is having on the economic recovery.

“The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases,” said the Fed.

US stock markets have been whipsawed in recent days by investor concerns over the Fed’s looming lift-off.

No one really expected the Federal Reserve to start hiking interest rates on Wednesday.  What’s been roiling markets of late are concerns over just how hawkish the Fed will become. Many will be listening closely to Fed Chairman Jerome Powell’s post-meeting press conference for clues on that.

By saying a rate hike may “soon be appropriate” the Fed is signaling that a rate hike could come in March – as many economists and investors are expecting.

The Fed slashed interest rates to near zero in the opening days of the pandemic in 2020, and unleashed a slew of extraordinary measures to nurture the economy through the unprecedented disruptions created by lockdown and border closures that threw 22 million Americans out of work.

But the economy – and the jobs market – have been steadily recovering. Disruptions still exist, but now its supply chain snarls and shortages of workers and raw materials that are raising costs for businesses and consumers.

In December, after the US central bank started pivoting monetary policy away from job-boosting cheap-money and toward reining in inflation, it signaled it would raise interest rates at least three times this year.

But inflation is running at its hottest in nearly forty years. And while the US created a disappointing 199,000 jobs in December it wasn’t because not enough businesses are hiring. Jobs creation is suffering from too many businesses chasing too few available workers. In fact, workers feel so confident about their jobs prospects that they are saying “I quit” in record numbers.

That has had led some Wall Street economists – notably over at Goldman Sachs – to predict that there could be four rate hikes in the cards this year, not three.

Mind – that is even with the disruptions caused by the Omicron variant, which triggered a wave of workers calling in sick.



[ad_2]

Source link

Recommended For You

About the Author: Web News Report