Home NewsEconomy News Fed signals fastest tightening since 2006; markets see more By Reuters

Fed signals fastest tightening since 2006; markets see more By Reuters

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Yellen says Biden economic plan to spread growth across more 'places and races' By Reuters

© Reuters. The Federal Reserve interest rate announcement is displayed on a screen as traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 16, 2022. REUTERS/Brendan McDermid

by Ansafir

(Reuters) – Federal Reserve policy makers said on Wednesday they will raise interest rates much faster this year than they expected a few months ago, to around 1.9 percent by the end of the year, as they try to rein in soaring inflation.

Markets quickly priced their agreement, and then some, contract trades tied to the Fed’s target policy rate to 1.93% by the end of 2022.

The last time the Fed raised rates at the pace policymakers now expect was in 2004-2006.

At the time, they raised rates by a quarter of a percentage point at every meeting. Since then, they have been much slower in tightening policy amid a weak recovery and subdued inflation.

Fed Chairman Jerome Powell said on Wednesday that policymakers are now “astutely” aware of the need to stabilize prices and committed to doing so, with inflation in the Fed’s preferred inflation gauge hitting three times its 2 percent target.

But the exact pace of rate hikes is still up for debate, with the market pricing in a 0.5 percentage point rate hike in May or June.

Powell kept the door open to that possibility, saying repeatedly that the Fed would accelerate rate hikes if inflation did not cool as expected.

In fact, seven of the Fed’s 16 policymakers have a rate hike path that calls for at least 0.5 percentage point hikes this year.

“Clearly, the (Fed’s policy-setting) committees intend to send a positive signal that they are determined to rein in inflation and rein in inflation expectations,” wrote regional chief economist Richard Moody.

The market got the news.

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