12/17- Weekly Economic Highlights

The Federal Open Market Committee (FOMC) kept the fed funds target rate unchanged this week, in a range of 0.0%-0.25%, but announced plans to accelerate the pace of their tapering process. The Fed will reduce the magnitude of their monthly asset purchases by $30 billion in January, doubling the pace of the monthly reduction in asset purchases that began in November. Should the Fed continue to reduce their monthly asset purchases at the new pace, their bond-buying program would end this spring (late-March or mid-April), a few months earlier than the guidance that Fed Chair Powell initially provided in October. The FOMC’s updated Summary of Economic Projections indicates that policymakers may be prepared to hike the fed funds rate three times in 2022 (based on the median estimate), up from the previous projection of just one 25 basis point hike. The Fed’s updated projections suggest that these hikes would be amid a backdrop of strong economic growth and still modestly elevated inflation. In essence, the outlook indicates that they believe the economy is strong enough to sustain multiple rate hikes and still continue to expand at an above-trend growth rate. Fed Chair Powell noted that economic activity has been robust and aggregate demand remains very strong. With inflation now more elevated and prolonged than originally anticipated, we believe the Fed’s decision to accelerate the tapering process is prudent. However, we do not believe that monetary policy is on a pre-set course and expect the Fed will adjust policy if necessary, depending on developments in the economy.

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