Diverging from its initial economic forecast for the year, the US Federal Reserve kept the benchmark interest rates near zero but indicated that hikes might come sooner than expected.
Along with the interest rate announcements, officials also indicated that the central bank will soon reduce the stimulus that was started during the financial crisis, but with no clear timelines.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC’s post-meeting statement said. Respondents to a recent CNBC survey said they expect tapering of bond purchases to be announced in November and begin in December.
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Chairman of the Federal Reserve, Jerome Powell said that the committee is ready to move. “While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” he said.
With a unanimous vote, the committee anchored the short-term rates near zero but most members see the first hike coming in 2022.
With the Fed inching closer to achieving its goals on inflation and employment, Powell called it “substantial further progress”.
“For inflation, we appear to have achieved more than significant progress, substantial further progress. That part of the test is achieved in my view and the view of many others,” he said.
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“My view is that the test for substantial further progress on employment is all but met,” Powell added.
After the announcement, the markets dipped initially with major stocks holding steady in the green and government bonds showing mixed yields.
The Federal Reserve’s economic forecasts for the year saw some substantial change with a decrease in growth outlook and higher inflation expectations.