The Federal Reserve may signal three interest rate increases for next year after a key meeting that will conclude Wednesday, according to an expert.
The Fed's "policymakers will communicate through its dot plot that there will be 3 quarter percentage point increases in the federal funds rate in 2022," Mark Zandi, chief economist at Moody's Analytics, told Anadolu Agency in an email.
"I expect the Federal Reserve to announce that it is accelerating the tapering of its quantitative easing. Their bond buying will end by next March," he said.
Fed Chair Jerome Powell shifted his dovish stance to a hawkish tone on Nov. 30, saying that it would be "appropriate to consider wrapping up the taper of asset purchases a few months sooner."
While tapering, the process of reducing monthly asset purchases, was expected to end by mid-2022, the Fed many end it by March.
That would provide more room for the central bank to prepare for rate hikes for the remainder of next year to tame rising inflation.
Powell said Dec. 1 that the central bank is ready to use its tools to fight high inflation, as consumer prices jumped 6.8% in November, its largest annual increase since 1982.
But the labor market continues to post weak job numbers. While the US economy added just 210,000 jobs in November, there are still 6.9 million unemployed Americans in the world's largest economy. The unemployment fell to 4.2% in November, from 4.6% the previous month.
Zandi said behind the Fed's "more aggressive normalization" in monetary policy is "the very strong economy."
"November’s modest employment gain understates the strength of the job market -- that is fast approaching full-employment, and the uncomfortably high inflation," he said.
"The Fed has a difficult job navigating the uncertainty created by the pandemic, and to a less degree whether the Build Back Better legislation will become law," he said.
As Democrats try to pass President Joe Biden's $1.75 trillion Build Back Better Act before the end of the year, it remains to be seen how much resistance it will see from Republicans.
The omicron variant presents even more uncertainty, as a rapid increase in cases brings the possibility of quarantine measures again, similar to March 2020 when the Fed had to cut interest rates rapidly in an emergency move.
"They [Fed policymakers] will need to remain flexible and adjust the pace of normalization depending on shifting conditions," Zandi said.