Fed Keeps Rates, Bond Purchases Steady; Signals Hikes in 2023

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Fed Keeps Rates, Bond Purchases Steady; Signals Hikes in 2023
Credit: © Reuters.

By Yasin Ebrahim

Investing.com - The Federal Reserve kept interest rates and monthly bond buying steady, though signaled that it could hike rates sooner than previously expected.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25% and said it would continue its $120 billion monthly bond purchases.

The Fed has come under pressure to signal a willingness to begin taking its foot off the stimulus accelerator at a time when inflation is running at its hottest rate in years.

The central bank appears to be taking note.

The Fed hiked its interest-rate outlook in 2023 to 0.6% from previous projections of 0.1% in March, signalling to 0.25% rate hikes in 2023, the Fed’s Summary of Economic Projections showed.

It has previously pointed to its three part test -- maximum employment, inflation reaching 2%, and on track to run moderately above 2% for some time – needed to achieve a lift off in rates.

Despite acknowledging the faster pace of growth and inflation, the central bank continues to bet that the factors boosting price pressures -- including the reopening and weaker comparison last year, or base effects -- will be fleeting, and ultimately result in inflation averaging around its 2% target.

The softer job gains seen in recent months, meanwhile, has kept unemployment well above pre-pandemic levels, and strengthened the Fed's accommodative monetary policy stance to smooth out the bumps in what it sees as an uneven recovery.

Traders will shift attention to Fed Chairman Jerome Powell's press conference at 2.30 PM ET (1830 GMT), for more clues on future monetary policy action including insight into the roadmap to the tapering bonds.

Powell has previously suggested further substantial progress toward the Fed's goals would be required for tapering to get underway.

The Fed chief, however, isn't expected to give much away.

"I think it's also too early [for Powell] to even signal that there would be a nervousness around inflation," Johan Grahn, head of ETF Strategy at Allianz (DE: ALVG ) told Investing.com in a recent interview. "I wouldn't expect him to go down that path."

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