Federal Reserve policymakers shifted into anti-inflation mode on Wednesday, saying they would cut stimulus more quickly in the era of the pandemic at a time of rising prices and strong economic growth, ending a difficult year with a policy change that could result in a higher interest rate in 2022.

Central bank policy statement put in place an earlier end to the monthly bond buying program that the Fed has used throughout the pandemic to keep money afloat in the markets and to support growth. A new round of economic projections released on Wednesday showed authorities expect to raise interest rates, which are now close to zero, three times next year.

“Economic developments and changes in outlook justify this development,” Fed Chairman Jerome H. Powell said of the decision to withdraw bond purchases more quickly.

By reducing its bond purchases more quickly, the Fed is doing less to stimulate the economy with each passing month and is putting the program on track to end completely in March.

This would put Fed policymakers in a position to raise interest rates – their most traditional and powerful tool – sooner. The Fed has made it clear that it wants to end its bond buying program before raising rates, which would dampen demand by making it more expensive to borrow for a house, car or expansion. ‘a company. This would in turn weigh on growth and, ultimately, on price gains. The Fed’s new economic projections suggest that rates, which are at their lowest since March 2020, could reach 2.1% by the end of 2024.

The Fed’s last meeting of the year completed its decisive turn from full support for the economy to hedging against the risk of rapid and sustained inflation. While officials have spent much of the year charting a patient course to wean the economy off Fed support for the pandemic, they have become more worried that a price spike this year may persist, resulting in a more proactive position.

Central bank officials, who are supposed to maintain price stability and promote full employment, have also been encouraged by the strengthening of the labor market.

“In my opinion, we are making rapid progress towards as many jobs as possible,” Mr. Powell said in his remarks. Fed officials have estimated in their new economic projections that the unemployment rate will return to its pre-pandemic level of 3.5% by the end of 2022 – sooner than previously expected.

Yet inflation was higher and broader and lasted longer than policymakers expected. Consumer prices climbed 6.8% in November from a year earlier, the fastest rate of increase since 1982. The Fed’s preferred inflation indicator showed slightly slower gains but also increased sharply.

Some economists have warned that the new Omicron variant of the coronavirus could allow high inflation to persist if it further disrupts supply chains and causes factories to shut down for a period of time. Mr Powell acknowledged on Wednesday that the spread of the virus was a risk that was contributing to economic uncertainty.

“The increase in Covid cases in recent weeks, along with the emergence of the Omicron variant, poses risks to the outlook,” he said.

The Fed chairman said a quicker conclusion of the bond purchase – which officials first announced they would slow down after their November meeting – would put policymakers in a position to respond to a series possible economic results next year. And asked if there would be a big gap between the end of bond buying and the start of rate hikes, as there was in the last economic rebound, Mr Powell said the situation was different this time around. .

“The economy is so much stronger now,” said Powell, later adding that “there would be no need for that kind of long delay.”

Mr Powell’s public change to appear more concerned about inflation came shortly after President Biden announced on November 22 that he would appoint him for a second term as president, saying he believed Mr. . Powell focus on both the need to control inflation and foster a strong economy that creates jobs and increases wages.

That moment fueled speculation as to whether Mr Powell turned to fighting inflation and giving less priority to keeping cheap loans going once he got a reappointment – or that his reappointment gave him a new mandate to act more boldly, knowing that he would be there to carry out the planning.

But Mr Powell pushed back on the idea on Wednesday, providing detailed insight into his own development in his thinking on inflation and the data that convinced him the Fed needed to speed up its plans.

“It had nothing to do with it,” he said of the renewal, noting that other Fed officials were already implementing the policy change before M’s decision was announced. Biden. “My colleagues were talking about a faster reduction, and it doesn’t happen by accident.”

Mr Powell, his colleagues and many economists initially expected the rapid price gains to fade rather quickly as the economy went through a turbulent period of reopening after shutdowns intended to contain the pandemic.

But Mr Powell said his shift began after Labor Day, as the labor market showed signs of strengthening and inflation numbers remained high. Just before the last Fed meeting on November 2-3, wages rose sharply in the Employment cost index, which tracks how much employers spend on their workers.

“We got the ECI reading on the eve of the November meeting and it was very high,” Mr Powell said, adding that the index was so high that he briefly considered announcing an end. faster in buying bonds than what policymakers ultimately announced.

“I thought about whether we should increase our taper for a second,” he said. Then more data poured in, showing signs of rapid inflation that was spreading to categories that were not simply disrupted by the pandemic: rents were rising, for example. Progress in the labor market was also found to be “much faster”, resulting in a change in tone and approach.

Many policymakers are still hoping that inflation will return to the Fed’s 2% annual average target as global shipping lanes recede, factory output rises to meet demand, and consumers adopt shopping habits. more normal expenses after rushing to buy gardening equipment and stationery. bikes during the pandemic.

The strength of the labor market seems to have facilitated the change in tone and approach of the Fed. Since the labor market is recovering so quickly, officials may be less afraid of slowing it down when trying to control prices.

The unemployment rate fell to 4.2%, down sharply from double-digit highs it reached at the start of the pandemic. Yet many people remain out of the workforce – some because they have retired, but others because of fear of the virus or a lack of childcare. This makes it harder to judge how close the economy is to the Fed’s “maximum jobs” target.

That said, “in every appearance the president seems less optimistic that labor market participation will rebound soon,” wrote Michael Feroli, chief US economist at JP Morgan, in a research note after the announcement. “Instead, the focus has shifted to the traditional unemployment rate.”

Mr Powell suggested on Wednesday that it may take time to return to a higher turnout as the pandemic has significantly disrupted people’s working lives. And he hinted that lower labor market participation wouldn’t stop the Fed from raising interest rates.

He said getting people back into the workforce will take a long time to expand.

“To achieve this, we need to make sure that we maintain price stability,” said Powell.