Washington—The Federal Reserve on Wednesday announced a more aggressive stance to quell the wave of price increases that has affected cars, housing, food and other goods in the United States and become a political liability for President Joe Biden.
The central bank’s policy-setting Federal Open Market Committee (FOMC) announced it will accelerate the phase out of its stimulus measures to end them in March, which would then allow it to as soon as May deploy its most powerful weapon against inflation by raising lending rates.
While acknowledging the risk that the price increases could continue, Fed Chair Jerome Powell nonetheless maintained a steadfastly upbeat picture of the US economy, which he said was poised to continue its strong recovery and ready to be weaned off the central bank’s easy money policies.
“Economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy. Aggregate demand remains very strong,” Powell told reporters following the two-day FOMC meeting.
Powell admitted recently that he and his colleagues miscalculated how far prices would rebound in the wake of the pandemic crisis, and pledged to fight back.
But on Wednesday, he also stressed that any actions taken will depend on the economy’s performance, which still faces risks from the COVID-19 pandemic.
“We need to see how the inflation data and all the data evolve in coming months, but we are prepared to use our tools to make sure that higher inflation doesn’t get entrenched,” Powell said.
The committee in early November made the first step to taper its bond purchases, lowering the total by $15 billion a month, which would have ended the program around June.
Now, it will cut by $30 billion a month, ending the program two months earlier and putting the Fed in a position to raise the benchmark interest rate off zero, where it has been since the start of the pandemic in March 2020.
Powell said “the economy no longer needs increasing amounts of policy support” and painted a picture of a strong economy “in which it’s appropriate for interest rate hikes.”
The Fed said it will keep interest rates low until labor market conditions improve further, but in forecasts published alongside the FOMC statement, central bankers signaled they expect as many as three rate hikes next year.
Stock markets cheered the news, closing the day with solid gains.