The Federal Reserve on Wednesday said it might hike interest rates earlier than it had previously expected, penciling in two interest rate hikes in 2023.
In its statement, the Fed stuck to its guns and said the recent burst of inflation would be transitory. At the same time, it acknowledged that inflation would be much higher this year, raising its forecast for headline PCE inflation to 3%.
The new Fed statement removed prior language that said the pandemic was “causing tremendous human and economic hardship” across the country. Instead, the Fed said that progress on vaccinations has reduced the spread of COVID-19.
According to the Fed’s dot plot chart, 11 of 18 officials expect at least two rate hikes in 2023. In March, only seven expected one hike.
Seven officials now see the first hike next year, up from four in March.
The Fed is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month, along with keeping its benchmark rate pinned close to zero, in a concerted effort to keep financial markets stable and support the economy.
The Fed has said it wanted to see “substantial further progress” before slowing down the purchases — the first step of pulling back all the support for the economy.
The statement made no mention of whether the Fed discussed tapering the asset purchases.
Many economists, including former U.S. Treasury Secretary Larry Summers, say the Fed needs to rethink its policy given the two massive fiscal stimulus passed by Congress since December.
The S&P500 SPX index fell 1% after the Fed statement.
The yield on the 10-year Treasury note
rose to 1.53%
Powell will hold a press conference at 2:30 p.m. Eastern.