Recovery in the US economy signals Fed rate hikes ahead
June 20 2021 01:25 AM
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The Federal Reserve on June 16 held interest rates at near-zero but optimism over the progression of the US economic recovery spurred more Fed officials to project at least one rate hike by the end of 2023.
The US central bank held the target range for its benchmark policy rate unchanged at zero to 0.25%, where it’s been since March 2020, and maintained the $120bn pace of its monthly assets (bond) purchase programme. 
The decision of the Federal Open Market Committee, which is responsible for rate decisions, was unanimous.
According to the committee, “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.” 
A fresh round of its quarterly economic projections reflected the central bank’s optimism over the economic outlook, with 13 of the FOMC’s 18 members projecting at least one rate hike by end-2023. 
The US economic recovery is gathering strength as business restrictions lift and social activity increases across the country. Robust demand from consumers and businesses alike has outstripped capacity, leading to bottlenecks in the supply chain, longer lead times and higher prices.
The Federal Reserve considerably raised its expectations for inflation this year and brought forward the time frame on when it will next raise interest rates, CNBC reported. 
The Fed marked up its inflation forecasts through the end of 2023. Officials see their preferred measure of price pressures rising 3.4% in 2021 compared with a March projection of 2.4%. The 2022 forecast, Bloomberg reported, rose to 2.1% from 2%, and the 2023 estimate was raised to 2.2% from 2.1%.
However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying programme, though Fed chairman Jerome Powell acknowledged that officials discussed the issue at the meeting.
“You can think of this meeting that we had as the ‘talking about talking about’ meeting,” Powell said in a phrase that recalled a statement he made a year ago that the Fed wasn’t “thinking about raising rates.”
Recent indicators showed that in some respects the US is expanding at the “fastest” rate since World War II, CNBC noted. But that growth also has come with inflation, and the central bank has faced pressure from various sources to at least start curtailing the monthly $120bn in bond purchases.
At a news conference, Powell noted, “Fed officials had discussions” on the progress made towards the inflation and employment goals relative to the asset purchases, and will continue do so in the months ahead.
Markets had been looking for the possibility that the committee would address its open-market operations where it provides short-term funding for financial institutions. The so-called overnight repo operations, where banks exchange high-end collateral for reserves, have been seeing record demand lately as institutions look for any yield above the negative rates they are seeing in some markets.
Clearly, the Fed officials sped up their expected pace of policy tightening amid optimism about the US labour market and heightened concerns for inflation.



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