The Federal Reserve is expected early Thursday to announce that they will speed up the termination of bond purchases during the pandemic and signal a change in next year’s interest rate hike to curb the inflation surge.
The identification of the Covid-19 Omicron variant last month has already added a new level of uncertainty to policymakers. With the advent of new variants, policymakers are required to re -evaluate how the spread of the pandemic could affect consumers, businesses, economic growth and inflation.
On the other hand, economists surveyed by Reuters still expect US growth of almost 4% next year and are on trend. At the same time the survey also found that they expect that the Fed will withdraw its bond -buying program.
The Fed will issue a new policy statement along with an updated economic outlook at an upcoming Fed meeting. While there is little known about the Omicron variant, U.S. unemployment and inflation rates have surpassed the Fed’s latest projections, released in September. Policymakers now need to adapt to economic and market directions.
According to JPMorgan (NYSE: JPM) economist Michael Feroli, policymakers ’new forecasts“ will generally show lower projections for unemployment and higher for inflation, ”prompting a quarter percent increase in the Fed’s short -term policy rate starting in Jun.
Market players will also focus on a news conference by Jerome Powell on the direction of inflation and the Fed's reaction in formulating policy decisions, risks and prospects for next year.
The personal consumption expenditure (PCE) price index, the main measure of inflation for the Fed, rose more than 2% year -on -year in March and hit 5% in October, with no clear indication it would impact the global supply chain and demand sector.
Investors have for months expected the Fed to respond with higher interest rates to keep prices stable, which is one of its two main objectives mandated by Congress.
Investors generally expect the Fed to raise interest rates overnight by 0.75 percentage points next year which is currently set at almost zero.
