US Federal Reserve Hints At Three Rate Hikes In 2022 – Cryptovibes.com – Daily Cryptocurrency and FX News https://ift.tt/3Eao3DA

The rate at which the US central bank cuts spending on government bonds will be doubled and it expects to raise borrowing costs next year.

The US Federal Reserve has announced that through a major shift that will also see a series of interest rate rises next year, it will accelerate an end to the central bank’s pandemic-era support of the US economy.

These measures are a signal that US central bankers now view rising inflation as an issue that requires firm management to avert lasting damage to the United States economy, and no longer as a “transitory” nuisance caused by supply chain problems meeting pent-up consumer demand.

The Fed chairman Jerome Powell, at the end of a two-day meeting in Washington on December 15,  announced it will reduce its monthly $120bn (£90bn) spending on government bonds designed to lower long-term interest rates at twice the rate that he outlined just six weeks ago.

Short-term rates that have been set at near-zero for close to two years – another departure from indications offered by central bankers just three months ago when the Fed forecast one rate increase in 2022, also foreseen by officials to be raised.

In most of the world’s major economies, central bankers are attempting to go on a delicate tightrope walk: increase rates enough to shrink inflation, though not so much as to crush businesses, already struggling to meet escalating wages and materials costs, with higher borrowing costs, including servicing mortgages, credit cards, and loans.

Amid signs that consumers are beginning to tap into savings to meet the cost of living, efforts to curb inflation, which reached 6.8% in November, the highest in 39 years, materialized. In the year to November, producer prices increased more than expected, registering their largest gains in a decade. In the meantime, retail sales gains declined last month to 0.3% from an increase of 1.8% in October.

Andrew Hunter at Capital Economics noted:

“With prices rising sharply last month, the muted 0.3% m/m rise in retail sales values suggests that consumption was little changed in real terms. That won’t stop the Fed from accelerating the pace of its QE taper later today, but it supports our view that economic growth is likely to slow next year.”

To avoid shortages, many consumers, liberated from Delta-variant lockdowns, are presumed by economists to have been spending enthusiastically before the Christmas season.

However, consumer demand is well above last year’s levels, with retail sales – the largest driver of the US economic activity – rising 18.2% in November from a year earlier despite the slowdown in spending gains.

Julius de Kempenaer, a senior technical analyst at StockCharts.com, told reporters:

 “It’s very possible that people are taking a bit of an advantage or changing lanes because they are afraid of bad news coming from the Fed. But on the other hand, if the market were really afraid of bad news, the futures should have moved a lot more. So, this is not really a market that is speaking its voice, not yet.”

As pandemic support cheques end and the cost of credit increases, alongside higher interest rates, forecast – economists polled by Reuters predict rate rises of 0.25-0.50% in the third quarter of 2022, followed by another in the fourth – economists say that consumers may be spending before belt-tightening.

Record wage increases of 4.2% to September over a year earlier, meanwhile, have not kept pace with official inflation figures. The rising costs of fuel, housing, transport, and food have, in reality, pushed the costs of living higher and faster than the official numbers disclose.