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In May, the Fed could raise interest rates for the first time, according to economists.

According to Ryan Sweet, an economist at Moody’s Analytics, the US Federal Reserve might raise interest rates for the first time as early as May, after predicting three hikes for next year.

The Federal Reserve eliminated the word “transitory” from the definition of inflation after its much-anticipated two-day meeting ended on Wednesday, indicating it will end tapering sooner by boosting the pace of asset purchases. To combat high inflation, it announced three rate hikes for 2022.

Fed Chair Jerome Powell suggested afterward at a press conference that the central bank could raise interest rates before the economy reaches full employment.

Sweet told Anadolu Agency via email that “we had assumed, based on Fed instructions, that full employment was one of the three requirements needed to be reached before hiking interest rates.” “We may need to push back our forecast for the first-rate hike, which is presently scheduled for September, to May.”

“This will wrap up the tapering process by mid-March, three months earlier than previously thought, and opens the door for the Fed to begin raising the target range for the federal funds rate around the middle of the year if deemed necessary,” Sweet said of the decision to double the pace of its tapering from $15 billion to $30 billion monthly.

‘Inflation may be more quickly moderated.’

The Fed made an aggressive move this week, as many observers expected, after the Consumer Price Index (CPI) increased 6.8% in November, the highest 12-month gain since June 1982.

However, it raised its predictions for 2022 and 2023 for its preferred inflation indicators, personal consumption expenditure (PCE) inflation, and core PCE inflation.

It now expects both measures to reach 2.1 percent in 2024, putting it on track to meet its long-term inflation target of 2 percent.

“Through 2024, the Fed forecasts inflation to remain over its target,” Sweet added. “However, when year-over-year comparisons become increasingly difficult, inflation may decline more swiftly than some expect next year.”

Rents, Sweet said, could prevent inflation from decelerating as swiftly as expected next year, especially if supply-chain concerns persist.

“Rents in the industry have risen this year, but they usually have a lag in affecting the CPI.” Stronger rental inflation, as measured by the CPI, would likely be more noticeable by next summer, with rates up around 6% year-over-year, the most in decades,” he said.

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