US Fed Signals Three Interest Rate Hikes In 2022

Officials at the US Federal Reserve have announced a plan to increase the benchmark interest rate to 0.9% in 2022, up from the 0.3% indication from September’s meeting. Analysts say this equates to three rate hikes next year. 

In the same announcement, the Fed said it will accelerate the winding down of monthly bond purchases at twice the tempo previously expected. This aggressive pivot signals its intention to tackle inflation head on.

US stocks rallied on the news. The Dow added 1.1%, or more than 380 points. The S&P 500 gained 1.6%, and the Nasdaq Composite rose 2.2%.

With several leading central banks, like the Bank of England, Bank of Japan, and the European Central Bank, set to meet before year-end, analysts are keenly awaiting signs of a coordinated attempt to bring down inflation.

What does this mean for me?

With supply and demand imbalances related to the pandemic contributing to elevated levels of inflation, central bank intervention was inevitable to tackle high inflation. Many commentators are pleased that the Fed has moved into line with market thinking, with hopes now pinned on other central banks following suit.

As a trader, you can now expect to see opportunities arise as higher yielding bond instruments hit the market. In the medium-term, cooling economies could also see consumer-brand stock prices come down from their present highs.