The Federal Reserve has said the 15-month-old health emergency was no longer a core constraint on U.S. commerce.

Signaling that broad changes in policy may happen sooner than expected, U.S. central bank officials moved their first projected rate increases from 2024 into 2023, with 13 of 18 policymakers foreseeing a "Liftoff" in borrowing costs that year and 11 seeing two quarter-percentage-point rate increases.

Seven of the officials see rates moving higher next year, opening the possibility of even more aggressive action.

Fed Chair Jerome Powell, who spoke to reporters after the release of the central bank's latest policy statement and economic projections, said there had also been initial discussions about when to pull back on the Fed's $120 billion in monthly bond purchases, a conversation that would be completed in coming months as the economy continues to heal.

All told, Powell's comments and the new Fed policy statement marked a strong vote of confidence that the U.S. recovery is on track, with even the pandemic - an ever-present fact of life that has conditioned monetary policy since March of 2020 - of diminishing concern.

The policy statement dropped longstanding language that the health crisis "continues to weigh" on the economy. Instead, Fed officials said the influence of COVID-19 vaccinations would "Continue to reduce the effects" of the pandemic - a sentiment offered a day after New York state and California lifted most of their remaining pandemic-related restrictions.

"It is so great to see the re-opening of the economy ... and to see people out living their lives again. Who doesn't want to see that?," Powell said in a news briefing after the end of the two-day policy meeting, though he noted central bankers would "drag our feet" in declaring any final victory over the virus.

Still, this week's meeting will be noted as a distinct turn away from the crisis policies the Fed has pursued since the onset of the pandemic, at times crossing into uncharted territory with its broad and open provision of credit to an economy reeling towards a potential depression.

Instead of that dour outcome, Powell said on Wednesday that the talks on the fate of the Fed's asset-purchase program and the rate increases, whenever they occur, should be seen as a sign of confidence in an economic recovery that has proceeded faster than imagined.

The Fed now expects the U.S economy to grow 7% this year.

"Reaching the conditions for liftoff will mainly signal that the recovery is strong and no longer requires holding rates near zero," Powell.

Still, this week's meeting will be noted as a distinct turn away from the crisis policies the Fed has pursued since the onset of the pandemic, at times crossing into uncharted territory with its broad and open provision of credit to an economy reeling towards a potential depression.

Instead of that dour outcome, Powell said on Wednesday that the talks on the fate of the Fed's asset-purchase program and the rate increases, whenever they occur, should be seen as a sign of confidence in an economic recovery that has proceeded faster than imagined.

A lesson of the recovery and reopening, he added, is that it is "easier to create demand than bring supply up to snuff," though markets for products and labor would eventually normalize.

But he also acknowledged the rising risk that higher inflation may persist, a possibility apparent in the relative rush, by Fed standards at least, of policymakers toward an earlier rate increase.

Together, the projections were indicative of a recovery moving faster than anticipated, and justifying discussions about the next phase of policy for the Fed.

Source | Reuters