As global economies recover from the Covid pandemic, the US Federal Reserve found its new enemy 🎯: hot inflation, as the central bank met on Thursday and agreed to speed up the taper (i.e. reducing stimulus) + signaled raising interest rates earlier than expected.
Inflation💸 – a general progressive increase in prices of goods and services = less purchasing power of a certain currency
Why is inflation enemy number 1?
Prices have been going up…by a lot. 🔥 In the US, prices of consumer goods have been rising at the fastest rate in nearly 40 years.
- The Fed initially dismissed inflation as “transitory” – not permanent, but finally admitted inflation was greater + more persistent than expected in December.
While the Fed still expects inflation to come down in 2022, it is making a few changes to hurry things along…
So what’s the Fed going to do?
They met up on Wednesday and announced two changes to fight elevated inflation: ① further slowing down its pandemic support 💰 and ② signaling earlier interest rate hikes.
- Double the speed: The US started pulling back its pandemic stimulus (i.e tapering) in November – but will now 2x the taper speed, ending support months earlier than expected.
- We’ll raise rates sooner. It also projected three quarter-point interest-rate increases in 2022, another three in 2023 and two more in 2024. The projected pace is faster than expected.
Investors are digesting the news 🤑 The US, Europe, and Asian stocks all climbed on Wed. Tech shares powered Wall Street to a strong close Wednesday, but sank the most since September overnight. Will Fed’s tightening will help fight hot inflation without derailing economic growth?