Half of Fed Officials Support Rate Hike Next Year
Inflation Outlook Raised Despite Slower Economic Growth Forecast
New York Stock Market Gains Broaden... Treasury Yields Fall
[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), has signaled that it will raise interest rates sometime next year. It also mentioned that the tapering of asset purchases, amounting to $120 billion per month, will begin soon.
On the 22nd (local time), the Fed announced after the Federal Open Market Committee (FOMC) meeting that it kept the benchmark interest rate at zero.
The statement said regarding tapering, "If growth broadly continues as expected, a slowing of the pace of asset purchases may soon be justified."
The Wall Street Journal interpreted this as a signal that tapering will be decided at the November FOMC meeting.
Separately released on the same day, the Fed officials' dot plot forecasted the first interest rate hike in 2022. Half of the 18 officials supported a rate increase next year, advancing the previously forecasted timeline from 2023 announced in June.
The Fed's economic outlook data is the reason for the change in officials' stance. The Fed expects U.S. economic growth to slow and inflation to continue its high trajectory. This is interpreted as a warning of a possible stagflation.
The Fed's economic growth forecast for this year was lowered to 5.9%, down 1.1 percentage points from 7% in June.
The inflation forecast was raised. The Fed's expected inflation rate for this year is 3.7%, which is 0.7 percentage points higher than the 3% forecast in June.
The Fed also revised up next year's inflation forecast from 2.1% to 2.3%.
Following the Fed's announcement, major indices on the New York Stock Exchange have been rising. The Dow Jones Industrial Average rose 1.5%, and the Nasdaq Composite Index increased by 1.3%.
U.S. Treasury yields fell to 1.307%. A decline in Treasury yields means a rise in bond prices.
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