By Yasin Ebrahim
Investing.com - The Federal Reserve kept interest rates near zero Wednesday, but said it would step up the tapering of bond purchases and brought forward its timeline on rate hikes to curb elevated inflation.
The committee said it would increase the taper of its bond purchases by $30 billion a month, double the $15 billion monthly pace announced in November.
The move to accelerate the pace of bond purchase tapering was largely expected after Fed Chairman Jerome Powell recently flagged concern about inflation and conceded that it was “good time to retire that word [transitory].”
The Personal Consumption Expenditures price index, the Fed’s preferred inflation measure, was up 0.6% in October, pushing the rate for the 12 months through October to 5%, well above the Fed’s 2% target.
The Fed's pivot on inflation has some worried the central bank could be forced to tighten policy more aggressively just as the economy is expected to slow in 2022.
"The pressure is on the Fed to act but after waiting on the sidelines for so long and falling behind the curve, the aggressive action arguably needed to stem the backup in costs will likely come with a significant consequence for growth," Stifel said in a note.
The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25%.
The faster pace of tapering points to the bond purchasing program ending in March, paving the way for rate hikes to get underway in the summer of 2022.
Traders are expected to shift attention to Powell's press conference at 2.30 p.m. ET, for more clues on the Fed’s tapering plans and how the Omicron variant of coronavirus was affecting the economic outlook.