Steve Liesman: Major Shift Underway at the Fed

Photo Source: Wall Street Journal

According to Steve Liesman, the Federal Reserve is working towards easing its pandemic stimulus policies, which could lead to rate hikes even sooner than markets expect.  In an article released yesterday morning on CNBC, Liesman notes the Fed is likely to announce it will double the pace of its tapering during its December meeting (December 14-15).  He suggests discussions on rate hikes for next year may begin at these meetings as Fed officials submit their updated economic forecasts and fed funds rate projections.

We now have several Fed members speaking openly about the potential for multiple rate hikes next year, including St. Louis Fed President Bullard saying his “base case” is for two interest-rate hikes in 2022.  Meanwhile, Fed Chairman Powell was on record last week saying the Fed will no longer refer to inflation as transitory.  This all amounts to an increased potential for rate hikes coming in even faster than markets expect.

Reuters Graphics

Currently, the futures market is pricing in the first hike in June, with two more by the end of 2022.  But expectations from some are for a first hike in spring, with Barclays economists calling for a Fed hike in March.  A March hike would coincide with the projected end date of the bond-buying program if the Fed doubles the tapering speed, so all eyes will be on next week’s meeting to see if they confirm the new pace and hint at a potential spring hike.