Federal Reserve to withdraw stimulus more quickly

The Federal Reserve will cut back its stimulus programme more quickly than planned, as it ratchets up its response to rising inflation.

The US central bank had already announced it was tapering off the monthly support, introduced to bolster the economy during the pandemic.

But on Wednesday officials said the process would be speeded up, suggesting the stimulus will end by March.

The move opens the door to an interest rate rise in the first half of 2022.

Officials forecast that inflation will run higher next year than they had previously projected and that unemployment, the other measure targeted by the Federal Reserve, would fall to 3.5%.

As a result they forecast that benchmark interest rates would need to rise from current near-zero levels to 0.9% by the end of 2022.

The Federal Reserve began winding down its $120bn-a-month bond-buying programme in November, saying it would reduce the stimulus by $15bn a month.

But November's inflation data, showing prices rising at a pace not seen since 1982, increased pressure on the central bank policy-makers to take further action.

The stimulus will now be reduced by $30bn a month starting in January.

"The Fed apparently just woke up to the inflationary pressures consuming the US economy. With [Consumer Price Inflation] in touching distance of 7%, it should be of no surprise to see the Fed accelerating tapering," said Seema Shah, Chief Strategist at Principal Global Investors.

"Price pressures may well ease next year, but inflation will settle at a level uncomfortably high for the Fed," she added.

"The big question for markets now is: can the US economy digest this pace of [interest rate] hikes without ending up with a stomach ache?"

The new Omicron coronavirus variant has added uncertainty over the future path of the economy.

However the Federal Reserve said it expected economic growth to be 4% next year, higher than the 3.8% projected in September.