US plots three rate hikes as inflation soars

OFFICIALS at America’s central bank expect three interest rate hikes next year, as they dramatically shifted their predictions in the face of soaring inflation.

the Federal reserve held its main interest rate at the rock-bottom level of 0pc to 0.25pc last night after a two-day meeting of its ratesetting committee.

But in an indication of the growing worries surrounding the rising cost of living, it has pencilled in three rises next year. in september, they were split on whether rates would rise at all in 2022.

the Fed also plans to double the pace at which it withdraws its bond-buying programme, designed to inject money into the economy.

it will taper its asset-purchase scheme by $30bn per month from January, having trimmed $15bn off in november and December.

the announcement came just a day before the Bank of England is due to reveal its latest decision on interest rates in the UK.

Both the Us and Britain are facing a cost of living crisis – in the Us, inflation surged to 6.8pc in november, while figures from the office for national statistics yesterday showed UK inflation up to 5.1pc.

central banks raise rates to tame inflation, as this encourages businesses and households to save, not spend. But policymakers have been reluctant to shift too soon, worried that a rise could stall economic recovery from the pandemic.

the onset of the omicron variant has caused yet more headaches. While Jay Powell, who chairs the Fed, said omicron presented ‘downside risks’ to economic activity and employment, he noted it could also intensify inflation if it causes more supply chain chaos. Economists in the UK are divided on whether the Bank of England will hike rates today.

Julian Jessop, fellow at the institute of Economic Affairs, said the ‘credibility’ of officials ‘is on the line if they fail to act now to keep inflation expectations in check’.

But others are expecting the rate-setting committee to ‘wait and see’ how the omicron disruption pans out. though the Bank believes the price rises will be temporary, inflation has already risen well beyond the level which officials originally forecast.