The Federal Reserve signaled yesterday that it may act sooner than previously planned to start dialing back the low-interest-rate policies that have helped fuel a swift rebound from the pandemic recession but have also coincided with rising inflation, the Associated Press reported. The Fed’s policymakers forecast that they would raise their benchmark short-term rate — which affects many consumer and business loans, including mortgages and credit cards — twice by late 2023. They had previously estimated that no rate hike would occur before 2024. At a news conference, Chair Jerome Powell said the Fed’s policymaking committee also began discussing when to reduce its monthly bond purchases. But Powell made clear that the Fed has yet to decide when it will do so. The purchases, which consist of $120 billion in Treasury and mortgage bonds, are intended to keep longer-term rates low to encourage borrowing. The Fed has made clear that its first step in slowing its support for the economy will be to pare its bond purchases — and that it would begin to raise rates only sometime after that. Its key rate has been pinned near zero since March 2020. The central bank’s new forecast for rate hikes starting in 2023 reflects an economy that’s achieving faster progress than was expected earlier this year. At the same time, Powell sought Wednesday to dispel any concerns that the Fed might be in a hurry to withdraw its economic support by making borrowing more expensive. The economy, he said, still hasn’t improved enough to reduce the pace of the monthly bond purchases, which the Fed has said it intends to continue until “substantial further progress” has been made toward its employment and inflation goals.
