Federal Reserve Keeps Interest Rates Steady

The Federal Reserve on Wednesday held benchmark interest rates near zero but indicated that rate hikes could be coming sooner than expected, and it significantly cut its economic outlook for this year.

Along with those largely expected moves, officials on the policymaking Federal Open Market Committee indicated they will start pulling back on some of the stimulus the central bank has been providing during the financial crisis. There was no specific indication, though, as to when that might happen.

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC’s post-meeting statement said. Respondents to a recent CNBC survey said they expect tapering of bond purchases to be announced in November and begin in December.

“While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” he said.

For now, the committee voted unanimously to keep short-term rates anchored near zero.

However, more members now see the first rate hike happening in 2022. In June, when members last released their economic projections, a slight majority put that increase into 2023.

Powell said the Fed is getting closer to achieving its goals on “substantial further progress” on inflation and employment.

“For inflation, we appear to have achieved more than significant progress, substantial further progress. That part of the test is achieved in my view and the view of many others,” he said.

Officials then see inflation at 2.3% in 2022, compared with the previous projection of 2.1%, and 2.2% in 2023, one-tenth of a percentage point higher than the June forecast.

Including food and energy, officials expect inflation to run at 4.2% this year, up from 3.4% in June. The subsequent two years are expected to fall back to 2.2%, little changed from the June outlook.