Fed Expects Rate Hikes for 2022 and Beyond

This article is published in collaboration with Statista

by Felix Richter

Despite surging consumer prices, the Federal Open Market Committee (FOMC) unanimously decided to keep interest rates near zero for the time being. As the U.S. economic recovery progresses and inflation is picking up, it did move up its timeline for possible rate hikes, however, with all 18 committee members now expecting a rate hike in 2022.

With inflation having exceeded the FOMC’s long-term target of 2 percent for some time now, the Committee linked a possible rate hike to the achievement of its second policy goal, namely maximum employment, or to be more precise “labor market conditions consistent with the Committee’s assessments of maximum employment.”

Not only do the guardians of U.S. monetary policy expect to raise interest rates earlier than they did three months ago, but they also anticipate the rate hike to be more significant than previously expected. While the median projection for the “appropriate target range for the federal funds rate at the end of 2022” is now 0.75 to 1.00 percent, it was 0.25 to 0.50 percent in September and 0 to 0.25 percent in June.

Despite the latest rise in Covid cases, the emergence of the Omicron variant and persistent supply constraints, the FOMC remains bullish on the economy as a whole. The median projection for real GDP growth now stands at 5.5 percent for this year and at 4 percent for 2022.

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