Federal Reserve Expects to Raise Interest Rates in 2023

The Federal Reserve released economic estimates and a policy statement after a two-day meeting. The chair, Jerome H. Powell, speaks shortly.

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Federal Reserve officials on Wednesday moved up their expectations for when they will first raise interest rates from rock-bottom, a sign that a healing labor market and rising inflation are giving policymakers confidence that they will achieve their full employment and stable price goals in coming years.

Fed policymakers now expect to make two interest rate increases by the end of 2023, the central bank’s updated Summary of Economic Projections showed Wednesday. Previously, the median official had anticipated that rates would stay at rock bottom — where they have been since March 2020 — at least into 2024.

Jerome H. Powell, the Fed’s chair, will offer prepared remarks and take reporter questions during a webcast news conference scheduled to begin at 2:30 p.m.

“Progress on vaccinations has reduced the spread of Covid-19 in the United States,” the Fed said in a statement released at the conclusion of its June 15-16 policy meeting, one that took several optimistic revisions. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”

Economic data have offered a series of surprises since the Fed met in late April, and since it last released economic projections in March. Inflation data have come in faster than officials had expected, and consumer and market expectations for future inflation have climbed. Employers have been hiring more slowly than they were earlier this spring, as job openings abound but it takes workers time to flow into them.

The Fed continued to call that inflation increase largely “transitory” in its new statement. It has consistently pledged to take a patient approach to monetary policy as the economic backdrop rapidly shifts.

Its main policy interest rate, the federal funds rate, has been set at near-zero since March 2020, helping to keep borrowing cheap for households and businesses. The Fed is also buying $120 billion in government-backed bonds each month, which keeps longer-term borrowing costs low and can boost stock and other asset prices. Those policies work together to keep money flowing easily through the economy, fueling stronger demand that can help to speed up growth and job market healing.

Officials have pledged to continue to support the economy until the pandemic shock is well behind the United States. Specifically, they have said that they want to achieve “substantial” progress toward their two economic goals — maximum employment and stable inflation — before slowing their bond purchases. The bar for raising interest rates is even higher. Officials have said they want to see the job market back at full strength and inflation on track to average 2 percent over time before they will lift interest rates away from rock bottom.

Based on central bankers’ fresh projections released Wednesday, the median Fed official expects to achieve those goals by late 2023. The Fed’s so-called “dot plot” of interest rate projections showed that more than half of its 18 officials expect rate increases by the end of that year. More, but not quite half, expected an increase or two in 2022.

Fed officials also tweaked their economic estimates. They now see inflation averaging 3.4 percent in the final three months of 2021.

Wall Street has been eager to hear the Fed’s latest assessment of inflation, which has also become a major topic in Washington as the White House insists that higher prices are likely to fade but Republicans blast them as a sign of economic mismanagement. Persistently higher inflation could make it more difficult for Democrats to make a case for additional spending on priorities like infrastructure, even though the suggested outlays would trickle out over time.

“The current burst of inflation we’ve seen reflects the difficulties of reopening an economy that’s been shut down,” Janet Yellen, the Treasury secretary, said in response to lawmaker questions during testimony before the Senate Finance Committee earlier on Wednesday.

Alan Rappeport contributed reporting.

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