Fed expects rate hikes can hold off until at least next year

The Federal Reserve left rates near zero and said it would continue to use all the tools in its arsenal to support the still bouncing-back US economy. But it struck a somewhat more hawkish tone in Wednesday’s monetary policy update, saying it is prepared to “adjust the stance of monetary policy as appropriate if risks emerge.”

One of these risks could be a spike in inflation.

The Fed also noted public health indicators, labor market conditions and financial market developments as potential risks in its statement.

The central bank left interest rates unchanged in the range of zero to 0.25%.

Stocks briefly jumped following the statement.

Investors are worried that the full reopening of the economy will lead to a spike in consumer price inflation, which in turn will force the Fed’s hand in raising interest rates sooner than hoped. Treasury bond yields have been rising against the backdrop of this thesis, climbing to a 13-month high of 1.67% Wednesday.

According to the Fed’s consensus forecast — known as dot plot — the central bank doesn’t expect any rate hikes in 2021, but several Fed officials project higher interest rates in 2022.

This is a developing story. It will be updated