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Fed Keeps Rates, Bond Purchases Steady; Signals Hikes in 2023

EconomyJun 16, 2021 04:44PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com - The Federal Reserve kept interest rates and monthly bond buying steady, though signaled that two rate hikes could be on the cards by the end of 2023 amid forecast for a faster economic growth and inflation.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25% and said it would continue its $120 billion monthly bond purchases.

The Fed has come under pressure to signal a willingness to begin taking its foot off the stimulus accelerator at a time when inflation is running at its hottest rate in years.

The central bank appears to be taking note, bringing forward its forecasts for rate hikes to 2023.

The Fed hiked its interest-rate outlook in 2023 to 0.6% from previous projections of 0.1% in March, signalling two 0.25% rate hikes in 2023, the Fed’s Summary of Economic Projections showed.

The economy is expected to grow by 7.0% in 2021, up from previous estimates of 6.5%, while the forecast for 3.3% growth in 2022 was maintained. For 2023, the Fed sees growth of 2.4%, up from 2.2% previously.

It has previously pointed to its three part test -- maximum employment, inflation reaching 2%, and on track to run moderately above 2% for some time – needed to achieve a lift off in rates.

Despite acknowledging the faster pace of growth and inflation, the central bank continues to bet that the factors boosting price pressures -- including the reopening and weaker comparison last year, or base effects -- will be fleeting, and ultimately result in inflation averaging around its 2% target.

The pace of inflation is forecast to increase to 3.4% in 2021, and 2.1% in 2022, compared with prior estimates of 2.4% and 2% respectively. Looking ahead to 2023, inflation is projected to reach 2.2% target, up from 2.1% previously.

The softer job gains seen in recent months, meanwhile, has had little impact into the Fed's outlook on the labor market.

The Fed sees the unemployment rate for the 2021 at 4.5%, unchanged from 4.5% previously, and fall further to 3.8% next year, down from a previous estimate of 3.9%.

Further job gains in the years ahead is expected to push the unemployment rate down further to 3.5% in 2023, unchanged from a prior estimate of 3.5%.

The Fed also raised the rate its pays banks on excess reserves, the so-called IOER, by 5% following strong demand by institutions amid an ongoing hunt for yield.

In the press conference that followed, Fed chairman Jerome Powell attempted to downplay the hawkish outlook rates.

"The projections are individual projections and not a committee forecast ... they're not a plan," Powell said. "Discussing liftoff now would be highly premature."

On tapering, Powell said more data was needed for the Fed to expand on a timeline for trimming its bond purchases, and described the FOMC meeting as "the talking about talking about meeting."

Economists at Jefferies (NYSE:JEF) said "this implies that taper discussions will get more serious at the next meeting held on July 27/28. That would lay the groundwork for a firm signal from Jackson Hole on Aug 27, which puts the Sep/Nov meetings in play for a potential announcement (our previous assumption was December)."

Fed Keeps Rates, Bond Purchases Steady; Signals Hikes in 2023
 

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Comments (23)
peter neal
peter neal Jun 16, 2021 7:07PM ET
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If they are forced to raise Rates there will be a Depression. The Economy can not function without the Fed pumping liquidity. Asset prices would collapse and the everything Bubble would implode. Everyone knows that. They will create another Financial crisis and start easing again with direct payments to all.
Warren Wesley
Warren Wesley Jun 16, 2021 6:31PM ET
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I think investors were looking for action now...not some push off into tomorrow. investors are disapointed
Rasp Trade
Rasp Trade Jun 16, 2021 5:36PM ET
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Before 2023 anything can happen
Nghĩa Văn
Nghĩa Văn Jun 16, 2021 4:40PM ET
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pls tell me, should I buy gold right now or not?
Connecticut Yankee
A_Jaundiced_Eye Jun 16, 2021 4:13PM ET
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"The pace of inflation is forecast to improve to 3.4% in 2021, and 2.1% in 2022, compared with prior estimates of 2.4% and 2% respectively."  IMPROVE ? Why is higher inflation an Improvement ?
tim banks
tim banks Jun 16, 2021 4:13PM ET
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because its 5% right now. due to commodity and used car and travel demand. it then goes down once those normslize
Miriam Morkhul
Miriam Morkhul Jun 16, 2021 4:13PM ET
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Inflation measured by 1980's metric says we have 10-12% inflation.
Jokers R Us
Jokers R Us Jun 16, 2021 4:02PM ET
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2023 is when they will reverse course after markets sell off and then gold will go to $2,500-$3,000 overnight.
Connecticut Yankee
A_Jaundiced_Eye Jun 16, 2021 4:02PM ET
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Market sell-off and $3K gold, yes, but gradually, not overnight.
Ricardo Diogo
Rcd72 Jun 16, 2021 3:42PM ET
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it was a lost opportunity to prevent the escalation of the inflationthe later it comes the harder and painful it will be
Todd Gray
Todd Gray Jun 16, 2021 3:20PM ET
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inflation numbers are always fudged to the downside, plus they don't include income & consumption taxes. consumption taxes increase all the time in the most liberal states. employment numbers are always fudged to look better than reality. they never count those who've given up looking. plus, many jobs are going overseas. evictions are coming in mass. Dalio & Dimon are right. whats coming has been long delayed, and it's not pretty. media pumps up the market, because ratings fall like a bomb, shorty after the market tanks. who watches once the drama dies?
Jouni Matero
Jouni Jun 16, 2021 3:20PM ET
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I've now lost a lot trying to short the market this spring as these valuations make no sense and has nothing to do with previous standardi to calculate how valuable shares are. Now it's 1000% hyper speculation and then some. But, I've started to think now that I've just paid an expensive ticket to see how everything collapses in a year or so and then permabulls pay a lot more expensive ticket, mine is early bird
Matthew Low
Matthew Low Jun 16, 2021 3:20PM ET
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{{uid:216512322} ***trying to rationalize your losses instead of admitting you mighy be wrong. Investing.com comments are always filled with trash loser investors.
Jouni Matero
Jouni Jun 16, 2021 3:20PM ET
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I agree, especially with last part.
Mark Manley
Mark Manley Jun 16, 2021 3:10PM ET
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Interesting comment Max. I noted 17 references to inflation so far this week in the liberal press. Oh, and conservatives have jobs and incomes and savings so most aren't worried about their Corn Flakes costing 7c more. It's all of you liberals who can't live without mommy and daddy's money and uncle Joe's quarterly checks.
tim banks
tim banks Jun 16, 2021 3:10PM ET
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lol no its conservatives that have been crying for months that liberals are ruining the economy by pumping in money. the reality is the economy is great and thats why the fed will raise rates
Benjamin McIntire
Benjamin McIntire Jun 16, 2021 3:10PM ET
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Ok m8 we will all get welfare increases indexed to inlfation under biden. I already make more money from my 12 kids than you do working 70 hrs a week. Or at least that is your weird fantasy.
Michael Dell
Michael Dell Jun 16, 2021 3:06PM ET
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Feds inflation is 2 percent and rates been over 2 percent for maybe a year in the last 13 years xD
Guhkes Gangsta
Guhkes Gangsta Jun 16, 2021 3:06PM ET
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Those unemployment rates are literally unbelievable.....
Max Gothe
Max Gothe Jun 16, 2021 2:57PM ET
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Republicans/Trump supporters always yammer about inflation running away, but it never happens due to excesd spending by liberals. But the inflation never happens because the Fed can so easily control stimulus. Trump supporters cannot ever understand economics, although they do understand beer. So funny how deluded they all are.
Mark Jannetty
Mark Jannetty Jun 16, 2021 2:57PM ET
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have you shopped for anything? the joke is them saying inflation is anything less than 10% averaged. gas is double, housing 10 to 25%, lumber still up over 100% even after drop, autos 10 to 25%, electricity up 15%, food 5 to 33%, should I continue?
tim banks
tim banks Jun 16, 2021 2:57PM ET
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double? gas was 2.80 January last year. lumber will be down 48% in a month. hey biden made the bottom 80% richer you get higher demand. better for the economy
stranger luv
stranger luv Jun 16, 2021 2:33PM ET
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means double triple inflation, poor will become poorer, rich will become Richer, poor will die and rich will celebrate
Miriam Morkhul
Miriam Morkhul Jun 16, 2021 2:33PM ET
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Maybe not. In the worst case scenario money will be rendered useless. So what will a quadrillionare do when no one accepts dollars?
Larry DeAngelis
Larry DeAngelis Jun 16, 2021 2:29PM ET
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Did anyone notice the market sold off all day before the announcement? Cheaters everywhere!
Tony Hall
Tony Hall Jun 16, 2021 2:29PM ET
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Just means people are cautious. Sooner or later the feds will need to step in. This is risky what they are doing because they could implode our economy by staying idle. Lets hope they are right in their inflation predictions.
Gem Saloranta
Gem Saloranta Jun 16, 2021 2:25PM ET
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Means still no time for shorters?
Muhammad Qasim
Muhammad Qasim Jun 16, 2021 2:22PM ET
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this is good no change in this.
Johnny Crab
JohnnyCrab Jun 16, 2021 2:21PM ET
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Goal appears to hit brick wall at full speed. Kim is correct and history tells us this path does not end well.
Kim Boesgaard Lauritsen
Kim Boesgaard Lauritsen Jun 16, 2021 2:19PM ET
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Thats cool
Piero Giannellii
Piero Giannellii Jun 16, 2021 2:16PM ET
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Great for powell
Abdullah İpek
Abdullah İpek Jun 16, 2021 2:15PM ET
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Geh beras mad
Kim Andreasen
Kim Andreasen Jun 16, 2021 2:14PM ET
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The financial markets and in some degree the rest of the world is f..... Economic growth and inflation is high and yet FED is pumping liquidity into financial markets in a level never seen before. Everyone is addicted to free and unlimited money and FED will never manage to quit QE again.
David Philyaw
David Philyaw Jun 16, 2021 2:14PM ET
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They won't change till economy collapses; but that is not going to be too long.
Jouni Matero
Jouni Jun 16, 2021 2:12PM ET
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Surprise, no change in policy. Welcome stagflation...
Show previous replies (1)
Darryl Allen
Darryl Allen Jun 16, 2021 2:12PM ET
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Lazo Syxt its inflation without growth, right?
Jouni Matero
Jouni Jun 16, 2021 2:12PM ET
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Yes, you can always Google it if u don't?
Jouni Matero
Jouni Jun 16, 2021 2:12PM ET
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Kind of, it's increasing inflation and at the same time slow economic growth (which I expect to happen once producer prices keep on rising and people spend less and less, as which is already happening based on latest data from yesterday).
Jouni Matero
Jouni Jun 16, 2021 2:12PM ET
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Also add high unemployment, which is already here and won't ease, there you have stagflation. Year or two.
milena villa escobar
milena villa escobar Jun 16, 2021 2:12PM ET
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Lazo Syxt  ask Larry Summers he doesn't know either
Abdullah İpek
Abdullah İpek Jun 16, 2021 2:11PM ET
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