WASHINGTON, Nov 13 (NNN-XINHUA) – The U.S. Federal Reserve will be forced to start raising interest rates in 2022, as inflation pressures will remain elevated over the next two years, according to a report released by the Economics Group of Wells Fargo Securities.
“With inflation likely to remain hot for the next two years, and the labour market firmly on the path towards recovery, we now project an earlier liftoff for the federal funds rate,” the report said, expecting the Fed to raise the target range for the federal funds rate by 25 basis points, in the third quarter of 2022, and another 25 basis points in the fourth quarter of 2022.
“Furthermore, we expect two additional rate hikes of similar magnitude over the course of 2023,” the report said.
The Fed pledged to keep federal funds rate unchanged at the record-low level of near zero, since the start of the pandemic. Meanwhile, the central bank announced last week, it would start tapering its asset purchases later this month, amid great concern over inflation levels.
The consumer price index (CPI) rose 6.2 percent in Oct, from a year earlier, the strongest annual gain in over 30 years, the U.S. Labour Department reported earlier this week.
The Wells Fargo Economics Group expected U.S. inflation to push even higher over the next few months, as the CPI could run over six percent through the first quarter of 2022.
“Price pressures should then start to subside around the second quarter of next year, as many of the supply side issues wrinkling the economy begin to get ironed out,” the economics group said, expecting the CPI to rise 5.2 percent for the whole year 2022.
“In 2023, we are anticipating more modest rates of inflation, although inflation is slated to remain above the Fed’s average inflation target of 2% until the second quarter of 2023,” the economics group said.
“In short, inflation is going to get worse before it gets better, and we have raised our forecast to reflect this environment,” it added.– NNN-XINHUA