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At last week’s meeting of the U.S. Federal Reserve’s Open Market Committee, a majority of committee members signaled their expectation that the Fed would raise its key interest rates by one-quarter percentage point at least three times in 2022, beginning this spring.
All 18 committee members agreed that rates will need to rise next year.
A majority penciled in another three quarter-point hikes in 2023 and two in 2024.
Stupid or Liars?
We have extensively detailed, for nearly a year, that the Fed Banksters kept saying inflation was “temporary,” then it became “transitory,” while we kept forecasting it was real and would rise.
As recently as September, half the committee’s members thought any rate hikes could be put off until 2023, emphasizing the need for the job market to recover to pre-COVID strength before rates should rise (“When Will the Fed End Cheap Money Policy?” 27 Jul 2021).
Although 3.9 million more people remain jobless than in February 2020, studies now show many will not return to the labor market due to COVID fears, child and family care responsibilities, or having cashed out of the soaring stock and housing markets and taken early retirement (“The Great Resignation: Will Jobs Come Back?” 16 Nov 2021).
To lay the groundwork for a spring rate boost, the group voted to end the central bank’s $120-billion monthly bond purchases before April instead of by the end of June, as had been previously planned (see related story in this issue).
The Fed needs to stop buying bonds to stimulate the economy before it raises interest rates to restrain the economy.
“There’s a real risk now that inflation may be more persistent…and the risk of inflation becoming entrenched has increased,” Powell told a news conference after the meeting.
“Part of the reason behind our move today is to put ourselves in a position to be able to deal with that risk,” he said.
In early November, the Fed set a plan to reduce bond purchases by $15 billion a month, ending the program in June; now the bank will cut its purchases by $30 billion each month, ending the buying spree by April (“Fed Winding Down Bond Purchase Program: Jokers Wild,” 9 Nov 2021).
Inflation in the U.S. will end this year at 4.4 percent, most committee members at the meeting agreed, easing back to 2.7 percent in 2022 and settling around 2.1 percent by 2025.
Earlier, the group had projected that inflation would peak at 2.3 percent in 2022.
“We’re not going back to the same economy we had in February 2020,” Powell said in the press briefing.
“Early on [in the COVID War], the sense was that’s where we were headed,” he said.
TREND FORECAST: The investment and housing markets are in for a difficult year ahead as they wean themselves from the Fed’s artificially low interest rates and endless flow of cheap money.
Economic fundamentals will reassert themselves in the equity markets, most likely leading to a major correction when the Fed rate hits 1.5 percent.
The housing market will cool, although prices will remain high: strong demand will continue as younger families reach the home-buying age, mortgage lending criteria will be strict as long as COVID persists, and construction labor and materials will still be scarce through much of 2022.