Please ensure Javascript is enabled for purposes of website accessibility

Suspect Identified in Ambush Shooting That Killed 2 Idaho Firefighters

9 hours ago

Will Valadao Spoil Trump’s Plan for July 4th ‘Big Beautiful Bill’ Signing?

10 hours ago

Shaver Lake and Reedley 4th of July Shows Are Wednesday. Who Else Is Celebrating?

13 hours ago

Elon Musk Says Senate Bill Would Destroy Jobs and Harm US

13 hours ago

Israel Strikes Pound Gaza, Killing 60, Ahead of US Talks on Ceasefire

14 hours ago

Trump’s Administration Finds Harvard Violated Students’ Civil Rights, WSJ Reports

15 hours ago

How Did the Supreme Court Rule? Here’s a Look at the Big Cases

3 days ago
Fed Will Tighten Credit Faster and Sees 3 Rate Hikes in 2022
gvw_ap_news
By Associated Press
Published 4 years ago on
December 15, 2021

Share

The Federal Reserve will quicken the pace at which it’s pulling back its support for the economy as inflation surges, and it expects to raise interest rates three times next year.

In an abrupt policy shift, the Fed announced Wednesday that it will shrink its monthly bond purchases at twice the pace it previously announced, likely ending them altogether in March. The accelerated timetable puts the Fed on a path to start raising rates in the first half of next year.

Borrowing Costs May Soon Start to Rise

The Fed’s new forecast that it will raise its benchmark short-term rate three times next year is up from just one rate hike it had projected in September. The Fed’s key rate, now pinned near zero, influences many consumer and business loans, including for mortgages, credit cards and auto loans.

Those borrowing costs may start to rise in the coming months, though the Fed’s actions don’t always immediately affect other loan rates. And even if the central bank does raise rates three times next year, it would still leave its benchmark rate historically low, below 1%.

In a statement after its latest meeting, the Fed said that even with inflation far above its 2% target, it won’t likely begin raising rates until it has reached its goal of “maximum employment.” The Fed has not clearly defined when that target would be reached.

The policy change the Fed announced Wednesday had been signaled in testimony Chair Jerome Powell gave to Congress two weeks ago in discussing the extraordinary support the Fed supplied the economy after the pandemic struck last year.

Inflation Pressures Rising

The shift reflects Powell’s acknowledgement that with inflation pressures rising, the Fed needed to begin tightening credit for consumers and businesses faster than he had thought just a few weeks earlier. The Fed had earlier characterized the inflation spike as mainly a “transitory” problem that would fade as supply bottlenecks caused by the pandemic were resolved.

The run-up in prices has persisted longer than the Fed expected and has spread from goods like food, energy and autos to services like apartment rents, restaurant meals and hotel rooms. It has weighed heavily on consumers, especially lower-income households and particularly for everyday necessities, and negated the higher wages many workers have received.

In response, the Fed is shifting its attention away from reducing unemployment, which has fallen quickly to a healthy 4.2%, down from 4.8% at its last meeting, and toward reining in higher prices. Consumer prices soared 6.8% in November compared with a year earlier, the government said last week, the fastest pace in nearly four decades.

Policy Shift Carries Risks

The Fed’s new policy shift does carry risks. Raising borrowing costs too quickly could stifle consumer and business spending. That, in turn, would weaken the economy and likely raise unemployment.

Yet if the Fed waits too long to raise rates, inflation could surge out of control. It might then have to act aggressively to tighten credit and potentially trigger another recession.

Fed officials have said they expect inflation to cool by the second half of next year. Gas prices have already come off their peaks. Supply chain bottlenecks in some areas are gradually easing. And government stimulus payments, which helped spur a spike in spending that boosted inflation, aren’t likely to return.

Yet many economists expect high prices to persist. That likelihood was reinforced this week by a government report that wholesale inflation jumped 9.6% for the 12 months ending in November, the fastest year-over-year pace on records dating to 2010.

Housing costs, including apartment rents and the cost of homeownership, which make up about one-third of the consumer price index, have been rising at a 5% annual pace the past few months, economists at Goldman Sachs have calculated. Restaurant prices jumped 5.8% in November from a year ago, a nearly four-decade high, partly reflecting higher wage costs. Such increases will likely keep inflation well above the Fed’s 2% annual target next year.

The Fed’s monthly bond purchases were intended to hold down long-term rates to aid the economy, but with unemployment falling and inflation at a near-40-year high, they are no longer needed.

RELATED TOPICS:

DON'T MISS

What Are Fresno Real Estate Experts Predicting for 2025 and Beyond?

DON'T MISS

First California EV Mandates Hit Automakers This Year. Most Are Not Even Close

DON'T MISS

Clovis Police Seek Public’s Help in Finding Missing 82-Year-Old Woman

DON'T MISS

Fresno Woman Killed in Head-On Collision, CHP Investigating

DON'T MISS

Musk Vows to Punish Lawmakers Who Back Trump’s Spending Bill

DON'T MISS

Fresno Man Sentenced to Nearly 6 Years for $4.2 Million Tech Startup Fraud

DON'T MISS

Bryan Kohberger Pleads Guilty in Murders of Four Idaho Students, ABC News Reports

DON'T MISS

Wildfire Near Lake Madera Country Estates Burns 12 Acres, Now 100% Contained

DON'T MISS

Fresno County CHP Arrest Two in Interstate 5 Drug, Gun, and Counterfeit Money Bust

DON'T MISS

California Seizes Over 600,000 Pounds of Illegal Fireworks. Newsom Calls for Safe Celebrations

DON'T MISS

Where Trade Talks Stand With Major US Partners Ahead of Tariffs-Hike Deadline

DON'T MISS

Labor Icon Huerta Breaks Ground on Fresno Park Bearing Her Name

UP NEXT

CA’s Population Shrank in Trump’s First Immigration Crackdown. It Could Happen Again

UP NEXT

Oil Prices Slip on Easing Middle East Risks

UP NEXT

US Banks Rise as Fed Stress Test Success Clears Path for Payouts

UP NEXT

US Consumer Spending Falls as Trump Tariff’s Muddle Economy

UP NEXT

S&P 500, Nasdaq Near Record Highs as Rate-Cut Bets Creep Up

UP NEXT

Republicans Dangle Reprieve From Tax Retaliation as Trump Bill Heads Toward Votes

UP NEXT

Oil Prices Gain on Signs of Strong US Demand

UP NEXT

S&P 500, Nasdaq Approach Record High as Middle East Tensions Ease

UP NEXT

Nasdaq 100 Notches First Record High Close Since February

UP NEXT

California Politicians Ignore Ag’s Troubles, but Boost Movie Business

Fresno Man Sentenced to Nearly 6 Years for $4.2 Million Tech Startup Fraud

7 hours ago

Bryan Kohberger Pleads Guilty in Murders of Four Idaho Students, ABC News Reports

7 hours ago

Wildfire Near Lake Madera Country Estates Burns 12 Acres, Now 100% Contained

7 hours ago

Fresno County CHP Arrest Two in Interstate 5 Drug, Gun, and Counterfeit Money Bust

7 hours ago

California Seizes Over 600,000 Pounds of Illegal Fireworks. Newsom Calls for Safe Celebrations

8 hours ago

Where Trade Talks Stand With Major US Partners Ahead of Tariffs-Hike Deadline

8 hours ago

Labor Icon Huerta Breaks Ground on Fresno Park Bearing Her Name

8 hours ago

DOJ Announces Arrest, Indictments in North Korean IT Worker Scheme

8 hours ago

Fresno Man Arrested in Clovis for Sex-Related Crimes Against Minor

8 hours ago

Dyer’s Lobbying Works. Fresno Gets $100M for Downtown From State

8 hours ago

Clovis Police Seek Public’s Help in Finding Missing 82-Year-Old Woman

The Clovis Police Department is asking for the public’s help in locating an at-risk missing adult last seen on Thursday. Pathmani Goonawarde...

5 hours ago

Clovis Police are searching for Pathmani Goonawardena, 82, who went missing nearly three weeks ago and was last seen driving a white Volvo near Copper and Auberry, possibly en route to Coarsegold. (CHP)
5 hours ago

Clovis Police Seek Public’s Help in Finding Missing 82-Year-Old Woman

fresno
6 hours ago

Fresno Woman Killed in Head-On Collision, CHP Investigating

President Donald Trump and Elon Musk attend a press conference in the Oval Office of the White House in Washington, D.C., U.S., May 30, 2025. (Reuters File)
7 hours ago

Musk Vows to Punish Lawmakers Who Back Trump’s Spending Bill

7 hours ago

Fresno Man Sentenced to Nearly 6 Years for $4.2 Million Tech Startup Fraud

Bryan Koberger, who is accused of killing four University of Idaho students, listens during a hearing to overturn his grand jury indictment in Moscow, Idaho, U.S., October 26, 2023. (Reuters File)
7 hours ago

Bryan Kohberger Pleads Guilty in Murders of Four Idaho Students, ABC News Reports

The Blanca Fire, burning 12 acres northwest of Lake Madera Country Estates in Madera County, remains active with 0% containment and no reported injuries or structural damage as the cause is under investigation as of Monday, June 30, 2025. (CalFire)
7 hours ago

Wildfire Near Lake Madera Country Estates Burns 12 Acres, Now 100% Contained

Fresno County CHP arrested two on Interstate 5 after finding about one kilogram of suspected cocaine, a loaded ghost gun, and counterfeit money during a vehicle search on Sunday, June 29, 2025. (CHP)
7 hours ago

Fresno County CHP Arrest Two in Interstate 5 Drug, Gun, and Counterfeit Money Bust

Gov. Newsom warns Californians to celebrate the Fourth of July safely, emphasizing zero tolerance for illegal fireworks which have surged to over 600,000 pounds seized this year. (Shutterstock)
8 hours ago

California Seizes Over 600,000 Pounds of Illegal Fireworks. Newsom Calls for Safe Celebrations

Help continue the work that gets you the news that matters most.

Search

Send this to a friend