In view of the high inflation, the US Federal Reserve (Fed) is accelerating the scaling back of its bond purchases and expects up to three increases in key interest rates in the coming year.
The Fed announced on Wednesday that it would cut its bond purchases by $ 30 billion per month to support the economy in the corona pandemic, twice as much as before.
The key interest rate will initially remain between zero and 0.25 percent.
For the coming year, the US Federal Reserve is signaling a stronger tightening of monetary policy than recently expected. As the Fed's forecasts on Wednesday showed, the key interest rate, which is currently in the extremely low range of 0.0 to 0.25 percent, could rise to 0.9 percent in 2022. In the previous forecast from September, the Fed was still assuming a level of 0.3 percent. An interest rate of 1.6 percent is now targeted for 2023. That would be 0.6 percentage points more than in the last forecast.
The Fed is under pressure to tighten the reins of monetary policy because of the persistently high inflation rate.
The Fed's interest rate forecasts represent the average rate hikes expected by the members of the Central Bank Council.
They are not binding on the central bankers.
You can always adjust monetary policy in view of the development of the economy and the labor market.
Fed chairman Jerome Powell announced in a congressional hearing at the beginning of December that the US Federal Reserve could tighten its monetary policy a little faster and end the bond purchase program a few months earlier than previously planned in view of the stubborn inflation.
At the same time, he distanced himself from the assumption that high inflation was a temporary phenomenon.
In November, the US inflation rate was 6.8 percent - it has not been so high in almost 40 years. Even without the strongly fluctuating prices for food and the rapidly increasing energy costs, it still amounted to 4.9 percent. Since March 2020, the US key interest rate has been close to zero due to the pandemic. Experts expect two rate hikes in the next year.
One day after the Fed, the European Central Bank (ECB) will also decide on the future of its bond purchases on Thursday.
It is expected that it will decide differently than the US Federal Reserve.
It has indeed indicated that it intends to phase out its PEPP crisis program in March.
In return, however, it is likely to increase its long-term bond purchase program APP by a fixed amount, with which bonds can then be bought relatively flexibly until the end of 2022.
Interest rate hikes have not yet been on their agenda despite the high inflation.
The key interest rate has been at zero since the beginning of 2016 and was low for a long time before that.
Prices had risen by 4.9 percent in November, making them stronger than ever since the introduction of the euro.