Federal Reserve Expects to Raise Interest Rates in 2023

Fed officials also tweaked their economic estimates. They now see inflation averaging 3.4 percent in the final three months of 2021, before stripping out volatile food and fuel. They expect that headline inflation gauge to retreat quickly, however, falling to 2.1 percent next year and 2.2 percent in 2023.

Wall Street has been eager to hear the Fed’s latest assessment of inflation as it tries to gauge whether the central bank might start to dial back its support for the economy faster than expected. If that happened, it would weigh down stock prices and could roil bond markets.

The Fed’s view of inflation is also being closely watched in Washington as President Biden tries to rally congressional support for his ambitious and expensive economic agenda.

Persistently higher inflation could make it more difficult for Democrats to make a case for additional spending on priorities like infrastructure, even though the suggested outlays would trickle out over time. Republicans have blasted the spike in prices as a sign of economic mismanagement, while the White House insists that higher prices are likely to fade over time.

“The current burst of inflation we’ve seen reflects the difficulties of reopening an economy that’s been shut down,” Janet Yellen, the Treasury secretary, said in response to lawmaker questions during testimony before the Senate Finance Committee earlier on Wednesday.

Slowing down bond buying is likely to be the first step in the process toward a more normal monetary policy setting. Because the economy is healing, a “number” of officials at the Fed’s April meeting suggested that they would like to start talking about how and when to begin the so-called “taper” soon, minutes from that gathering showed.

Officials including Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, and Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, have signaled that they think it would be appropriate to get those discussions going. Other important policymakers have sounded patient, with John Williams, the New York Fed president, saying that “we’re not near the substantial further progress marker,” in a June 3 Yahoo Finance interview.

Article source: https://www.nytimes.com/2021/06/16/business/economy/fed-meeting-inflation.html