Fed eyes earlier rate hike as economy heals

“It is so great to see the reopening of the economy…”

Citing a rapidly recovering economy, U.S. Federal Reserve officials on Wednesday said they expect to raise interest rates in 2023 – sooner than their previous prediction of 2024.

Speaking to reporters after the end of a two-day policy meeting, Fed Chair Jerome Powell said officials also started (quote) "talking about talking about" tapering the central bank's $120 billion in monthly asset purchases, which officials said would continue until "substantial further progress" has been made toward the central bank's maximum employment and 2% inflation goals.

“And if we see inflation expectations, or inflation, moving up in a way that is really materially above what we would see as consistent with our goals – and persistently so – we wouldn’t hesitate to use our tools to address that.”

The Fed for now will continue to hold its benchmark short-term interest rate near zero and continue to buy $80 billion in Treasury securities and $40 billion in mortgage-backed securities each month to fuel the recovery.

The economy remains about 7.5 million jobs short of where it stood at the onset of the health crisis.

Fed officials still describe that level as "far" from their goal of restoring maximum employment.

But Powell said much of that reflected the time it takes to find a new job and other logistical issues – such as working out child care.

“There’s every reason to think that we’ll be in a labor market with very attractive numbers – with low unemployment, high participation and rising wages across the spectrum.”

Overall economic growth is expected to hit 7% in 2021.

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