The Federal Reserve is now forecasting two rate hikes in 2023, up from none previously, as it held its key interest rate near zero and vowed to keep its bond buying stimulus, reports say.
The central bank unveiled a highly expected set of projections by its policymakers, which showed some anticipate short-term rates to increase half a percentage point by late 2023.
However, the Fed gave no indication as to when it will start trimming its bond-buying program, although Chairman Jerome Powell acknowledged officials discussed the issue at a monetary policymeeting.
In their post-meeting statement, Fed officials acknowledged soaring inflation, hiking their estimates that it will reach 3.4%, up from a March projection of 2.4%.
The Fed forecast inflation would then fall sharply in 2022. Even this outlook builds in slower inflation in the coming months, economists said.
Markets reacted to the Fed news, with stocks retreating and government bond yields going up as investors expect a tighter policy ahead, including the likelihood bond purchases will slow before 2021 ends.
Meanwhile, last week's consumer-price index (CPI) report from the U.S. Department of Labor showed the cost of living surged in May and pushed the level of inflation to a 13-year high of 5%, reflecting a wide increase in prices confronting Americans, according to Market Watch.
The latest monthly employment report, on the other hand, shows an unemployment rate of almost 6% - higher than pre-pandemic levels, which hovered at a 50-year low of about 3.5%. According to Powell, employment remains the backbone of the Fed's work. "Rate increases are not the focus of the committee," he said.
Before, doubts about the U.S. economy's recovery from the Covid-19 crisis may have forced central bank officials to reset the timeframe for rate hikes further into the future.
Today, with massive immunization campaigns helping push the economy out of its prior stupor, the Fed may be feeling more upbeat, analysts said.
"This is a Fed that's focused on the labor market first and will let inflation run hot to get the labor market back to its pre-pandemic peak," USA Today quoted economist Steven Ricchiuto of Mizuho Securities USA as saying in a note.