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Timely and Relevant News: Highlights From The Federal Reserve Meeting
The Federal Reserve (Fed) recently ended its two-day Federal Open Market Committee (FOMC) meeting and as expected - there were some notable shifts to monetary policy.
Fed Chairman Jerome Powell confirmed that an accelerated plan to reduce its asset purchases was now warranted and the Committee is now expected to end its asset purchases completely by March of next year.
The Committee believes three interest rate hikes are warranted in 2022. Three months ago, the Committee was evenly split between rate hikes starting in 2022 and 2023.
What is most important for markets is how high and how fast the actual interest rate hiking campaign takes place. A slow deliberate pace of rate hikes will likely lead to a better outcome for the economy, and thus markets, than an overly aggressive one.
Powell has noted in the past that the Fed would likely not raise rates while still providing accommodation through its asset purchase plans. By ending the purchase programs quicker, this gives the Fed the “optionality” to increase interest rates sooner.
“This was a bit more hawkish shift than expected,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “Quicker tapering was expected but three rate hikes projected next year is slightly more than what was expected. That said, the Fed’s job, especially from this point forward, is to prove that it can manage the removal of monetary accommodation without slowing the economic recovery.”
The Fed meets four times a year to update its economic projections for the next several years, as well as its longer-term forecasts. The Fed is predicting a 4.0% GDP growth in 2022 (up from 3.8% in September) and higher inflation expectations for 2022. The Committee sees inflation scaling back to its longer-term trend in 2023.
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.