The U.S. Federal Reserve on Wednesday hinted at the possibility of three interest rate hikes next year while deciding to roll back its support for the coronavirus pandemic-hit economy faster than earlier planned amid concerns over rising inflation.
After a two-day meeting of the policy-setting Federal Open Market Committee, the bank said it will reduce from January its monthly purchases of Treasuries and mortgage securities by $30 billion, up from the $15 billion announced in November, citing inflation developments and the improvement in the labor market.
The Fed, meanwhile, maintained its target range for the federal funds rate at 0 to 0.25 percent, as widely expected.
The near-zero interest rate policy and the bond-buying program were introduced in March last year in a bid to shield the world's largest economy from the fallout of the pandemic.
But the Fed's latest economic projections indicated that the bank is leaning toward tightening its monetary grip faster than earlier thought, with all 18 policymakers now anticipating rate hikes in 2022, compared with nine in September.
Officials expect three quarter-point increases next year, three more hikes in 2023 and another two in 2024.
Fed Chairman Jerome Powell warned there is a "real risk now" that inflation may be more persistent than anticipated.
"The risk of higher inflation becoming entrenched has increased ...I don't think it's high at this moment, but I think it's increased," Powell told a press conference, adding that "part of the reason behind our move today is to put ourselves in a position to be able to deal with that risk."
Economic recovery following a deep downturn from the pandemic has caused supply chain disruptions, pushing up prices around the world, including in the United States.
In November, the consumer price index was up 6.8 percent from a year earlier, marking the sharpest rise in over 39 years, according to Labor Department data.
While the Fed is aiming for inflation averaging 2 percent over time as well as maximum employment, its median projection for inflation in the October-December period from a year earlier was 5.3 percent, up from the September forecast of 4.2 percent.
The 2022 inflation, gauged by the price index for personal consumption expenditures, was also revised up to 2.6 percent from 2.2 percent in September. At the end of 2023 and 2024, inflation is projected at 2.3 percent and 2.1 percent, respectively.
The Fed forecast U.S. gross domestic product will grow a real 5.5 percent in the fourth quarter of 2021, revised downward from the 5.9 percent expansion estimated in September, while expecting a 4.0 percent rise next year.
The unemployment rate is projected to be 4.3 percent in 2021, down 0.5 percentage point from the previous forecast, and 3.5 percent in 2022.
The Fed's latest decision to speed up tapering will mean that the asset-buying program will end in mid-March, a few months sooner than previously anticipated, Powell said.
Powell also said he is not expecting a rate lift-off while the asset purchases are continuing.