About a week ago, the Federal Reserve announced that it would prepare interest rate hikes going into next year, possibly as a result of the somewhat higher levels of inflation in the country right now. The central bank, according to this CNBC article, would do this by slowing down its open market operations (about 120 billion dollars worth of bond purchases each month.) The rate hikes in question would start in March of next year, culminating in about four hikes by the end of 2023.
This, however, will be complicated by the emergence of the omicron variant of COVID-19. The whole reason the Fed was keeping easy money policies was to speed up an economic recovery from the original coronavirus outbreak in March of last year. Would interest rate hikes derail the recovery? My thought is that it wouldn’t, at least as much as we would think it would. If the members of the Federal Open Market Committee agree on raising rates, they probably would have anticipated a tradeoff between employment and inflation, but given the level of inflation being seen right now, it probably wouldn’t hurt to tamp down on bond-buying right now (the CPI price index rose by 6.8 percent in November, over triple the normal amount for inflation.) With this in mind, a reduction in bond-buying seems like a good strategy for the Fed to take right now.