As recently as March, the Fed wasn’t expected to raise rates until 2024. Now, the central bank could implement as many as three rate hikes next year.

The Federal Reserve is tightening up its pandemic-era easy money policy and will increase the pace of tapering, a move that could usher in rate hikes earlier than expected, according to a statement released at the conclusion of the central bank’s latest policymaking meeting.

In light of inflation developments and the further improvement in the labor market, members of the Fed’s policymaking committee voted unanimously to wrap up its massive bond-buying program in half the time it initially anticipated, and projected three rate hikes in 2022. The first hike may be expected as early as Jun-July.

The Fed will double down on its monthly asset purchases. The central bank announced last November that it would begin tapering by $15 billion a month; this amount will now double starting in January. The new pace means the program will conclude in March ’22 rather than in June.

“Just one month after initiating the taper, they have doubled the pace of withdrawal in an effort to conclude by March so they can raise interest rates sooner,” said Greg McBride, chief financial analyst at Bankrate. “The omicron variant is a wild card for both Fed policy and the overall economy. Until there is greater clarity about transmissibility and possible economic fallout, the Fed has left themselves room to reverse course – again – should it become necessary”.

Data released earlier this month found that consumer inflation hit a four-decade high, and the Department of Labor reported Tuesday that wholesale prices jumped at a record rate of 9.6% from a year ago.

In recent comments, Fed Chairman Jerome Powell has retreated from describing price increases as transitory. “There’s a real risk now… that inflation may be more persistent,” Powell said Wednesday in a press conference after the December FOMC meeting.

In response to questions about the time frame between the end of the taper and the initiation of rate increases, he said it was not a topic on which policymakers have focused yet.

“Financial conditions can change very quickly” and can “fairly rapidly” affect the economy, Powell said. “We’re not going back to the same economy.

The Fed can’t do anything about factory shutdowns in Asia or container ships queued up off the coast of California, said Ross Mayfield, investment strategy analyst at Baird. “A lot of the inflationary pressures are on the supply side of the equation, which the Fed can’t do much about,” he said.

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Today’s post is written by Michael Green, Commercial Loan Originator for Counsel Mortgage Group, LLC.