By Tom Burnett CFA
On December 15, 2021, the Federal Reserve announced the results of its December Open Market Committee meeting. The Fed will not be changing interest rates, leaving the Fed Funds rate at a range of 0-0.25%. The Fed did make it clear that the bond purchase program, currently running at $120 billion a month, will be curtailed by $30 billion in December. Starting in January 2022, the program will be limited to $60 billion per month. The Fed expects to make similar bond purchase reductions in later months but reserves the right to add to the purchases if the labor market does not continue expand. Job growth in 2021 was a positive development, but with new virus variants, the trends could reverse and the Fed will be monitoring the jobs market closely to determine if additional bond purchases are warranted.
The Fed also released its updated economic projections for the next three years. The last set of forecasts was issued in September. Real GDP is now expected to grow by 5.5% in 2021, down from 5.9% forecast in the September report. In 2022, the Fed now sees GDP growth of 4.0%, up from a projection of 3.8% in the September forecast. The unemployment rate is now seen as ending 2021 at 4.3% with a further decline to an average of 3.5% in 2022. Inflation is now projected to average 5.3% in 2021, up from 4.2% in the September release. For 2022, inflation is now projected at 2.6%, above the 2.2% expected in the September report.
Bond yields were barely affected by the Fed press release with ten-year yields holding around 1.46% and the 30-year yield around 1.85%
The next Fed Open Market Committee meeting is scheduled for January 25-26, 2022.
Tom Burnett CFA is Director of Research