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# Federal Reserve Doubles Taper Pace and Signals Three 2022 Rate Hikes as Inflation Pressures Intensify
- URL: https://www.theamericanquorum.com/taq-historical-2021-12-18-us/
- Published: 2021-12-19T04:59:00.000Z
- Updated: 2021-12-19T04:59:00.000Z
- Description: The Federal Reserve accelerated the end of its pandemic-era bond purchases and projected three interest-rate increases in 2022 as officials responded to persistently high inflation.
- Author: TAQ Staff
- Tags: US, #Import 2026-08-31 06:57

The Federal Reserve moved decisively toward tighter monetary policy Wednesday, doubling the pace at which it will reduce its pandemic-era bond purchases and signaling that officials now expect multiple interest-rate increases next year as inflation runs far above the central bank’s target.

In its [policy statement](https://www.federalreserve.gov/newsevents/pressreleases/monetary20211215a.htm), the Federal Open Market Committee kept the federal funds rate near zero but said it will reduce monthly asset purchases twice as quickly as previously planned. Beginning in mid-January, the Fed expects to buy $40 billion of Treasury securities and $20 billion of agency mortgage-backed securities per month, putting the program on course to conclude around March if the new pace continues.

## The taper accelerates as the inflation diagnosis changes

The shift reflects a significant change in the economic balance confronting the Fed. The labor market has continued to recover, but inflation has proved stronger and broader than policymakers expected earlier this year. Consumer prices rose 6.8% over the 12 months through November, and price pressures are showing up across energy, food, housing, vehicles and business inputs.

Chair Jerome Powell said at his [press conference](https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20211215.pdf) that the economy no longer needs the same degree of policy support it required when vaccines were less available, unemployment was higher and the recovery was more fragile. He also acknowledged that inflation has persisted longer than anticipated and that the risk of higher prices becoming entrenched has increased.

The Fed’s updated [economic projections](https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20211215.htm) underscore the turn. The median policymaker projection places the federal funds rate at 0.9% at the end of 2022, a level broadly consistent with three quarter-percentage-point increases from today’s near-zero range. Officials also projected additional increases in 2023 and 2024, although those forecasts are not commitments and can change with incoming data.

## Ending bond purchases creates room to raise rates

The Fed has treated the completion of asset purchases as a practical prerequisite for lifting short-term rates. By accelerating the taper, officials are creating the option to begin raising rates earlier in 2022 without promising a specific date. The [implementation note](https://www.federalreserve.gov/newsevents/pressreleases/monetary20211215a1.htm) details the mechanics of the reduced purchases and the operating framework that will keep the funds rate within its current target range.

That sequencing matters because the central bank is trying to withdraw extraordinary support without shocking financial markets. Asset purchases were introduced at enormous scale in 2020 to restore market functioning and lower borrowing costs. As the economy recovered, they evolved into a continuing source of accommodation. Ending them faster signals that officials believe the emergency phase of monetary support should conclude even as the pandemic continues.

A contemporaneous [Associated Press report carried by PBS](https://www.pbs.org/newshour/economy/fed-will-tighten-credit-faster-and-sees-3-rate-hikes-in-2022-amid-inflationary-pressure?ref=theamericanquorum.com) described the decision as the Fed’s clearest move yet toward combating inflation. The central bank is still emphasizing that decisions will depend on employment, inflation and financial conditions rather than a preset calendar.

## The labor market complicates the timing

Powell and other officials continue to describe the labor market as rapidly improving. The unemployment rate fell to 4.2% in November, job openings remain high and employers across industries report difficulty hiring. Yet payroll employment remains below its pre-pandemic level, and labor-force participation has not fully recovered.

This creates a delicate policy problem. Higher interest rates can restrain demand, credit growth and asset prices, which may reduce inflation pressure. But tighter policy can also slow hiring before people who left the workforce during the pandemic have returned. The Fed’s dual mandate requires officials to weigh both maximum employment and stable prices.

A [CBS News analysis](https://www.cbsnews.com/news/fed-interest-rate-annoucement-what-to-expect-2021-12-15/?ref=theamericanquorum.com) ahead of Wednesday’s decision highlighted how the inflation surge has changed expectations for the meeting. Financial markets had increasingly anticipated a faster taper and earlier rate increases as price data continued to surprise on the upside.

## Omicron adds uncertainty but does not stop the pivot

The rapidly spreading Omicron variant introduces another layer of risk. A major wave could disrupt travel, services, workplaces and supply chains, potentially slowing growth while also worsening some of the bottlenecks contributing to inflation. The Fed acknowledged that the path of the economy continues to depend on the course of the virus.

Still, officials did not allow that uncertainty to delay the policy shift. The message from Wednesday is that persistent inflation now poses a sufficiently serious threat to justify withdrawing support faster, even though the exact path of the pandemic remains unclear.

The Fed has not committed to three rate increases, nor has it specified when the first would occur. But the combination of a faster taper, higher projected rates and Powell’s emphasis on inflation marks a clear transition. Monetary policy is moving away from emergency support and toward restraint. For businesses, borrowers and investors, the central question entering 2022 is no longer whether the Fed will begin tightening, but how quickly it will decide the economy can absorb it.