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Fed flags bond-buying taper 'soon,' rate hike shifts to 2022

Kitco News

WASHINGTON, Sept 22 (Reuters) - The Federal Reserve on Wednesday cleared the way to reduce its monthly bond purchases "soon" and signaled interest rate increases may follow more quickly than expected, with nine of 18 U.S. central bank policymakers projecting borrowing costs will need to rise in 2022.

The actions, which were included in the Fed's latest policy statement and separate economic projections, represent a hawkish tilt by a central bank that sees inflation running this year at 4.2%, more than double its target rate, and is positioning itself to act against it.

The current target interest rate was held steady in a range of 0% to 0.25%.

Though acknowledging the new surge of the pandemic had slowed the recovery of some parts of the economy, overall indicators "have continued to strengthen," the Fed said in a unanimous statement.

If that progress continues "broadly as expected, the Committee judges that a moderation in the pacer of asset purchases may soon be warranted," the Fed said.

The statement had been widely expected to signal that the Fed would soon begin winding down the $120 billion in monthly bond purchases it has been making to blunt the economic impact of the coronavirus pandemic.

But it was in their broader economic outlook that Fed policymakers made a less anticipated change.

The outlook for inflation jumped 0.8 percentage point for 2021 to 4.2% and the unemployment rate seen at the end of this year rose. In turn, two officials brought forward into 2022 their projected timeline for slightly lifting the Fed's benchmark overnight interest rate from the current near-zero level, enough to lift the median projection to 0.3% for next year.

Reporting by Howard Schneider Editing by Paul Simao
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