Will Interest Rates Go Up in 2022?

Short Answer: Probably.

At least, that's what seems to be the consensus after some comments made by Fed Chair Jerome Powell in testimony last week.

It's clear that the Federal Reserve is on the move, and you need to make sure that you’re fully aware of what this means for you. If you’ve considered taking out a loan or refinancing your mortgage for a better interest rate, do it now! Don’t put it off any longer.

What would make the Fed raise interest rates next year?

It’s been well documented that inflation has been out of control since October (more like June… but I digress) and because of this, the Federal Reserve Bank has been forced to re-think their “quantitative easing” plan and begin the process of pulling back their work of pumping money into the economy.

With the pressure caused by rising inflation, they’re also in a tough spot when it comes to deciding whether or not they should increase interest rates before late 2022 or early 2023, which is what they had initially planned to do.

Steve Liesman with CNBC writes, “St. Louis Fed President James Bullard said Friday he wants asset purchases to end in the first quarter so the Fed can position itself ‘soon’ and make every meeting ‘live’ for a possible rate hike. Several other officials have now spoken openly about the chance for multiple rate hikes next year and the potential need to raise rates to combat inflation.”

At this point, it appears that the markets are expecting rates to be increased twice next year, though some recommend that the market be prepped for four rate increases. As Christopher Anstey shares:

“Former Treasury Secretary Lawrence Summers said that Federal Reserve Chair Jerome Powell ought to signal the possibility of raising interest rates four times next year, in order to restore what he argues is the central bank’s lost credibility on fighting inflation.

‘I’d be signaling four rate increases next year -- with two-sided uncertainty, depending on how the inflation figures of work out,’ Summers said on Bloomberg Television’s ‘Wall Street Week’ with David Westin. ‘That will be a jolt. But a jolt is what is required to restore credibility.’”

The entire argument for the existence of the Federal Reserve Bank (or any centralized government bank) is that they have a greater ability to "control" inflation and recession.

The Fed's “goal” inflation rate is 2% and when Covid hit, they went into overdrive with printing money quantitative easing the economy out of an impossible situation caused by a global pandemic.

Initially, they planned to continue their stimulus program into 2022, however the ballooning inflation rates have required them to rethink their initial projections.

Dow Jones shares:

“Just four weeks ago, the Federal Reserve set in motion carefully telegraphed plans to gradually wind down a bond-buying stimulus program by June. Officials are making plans to accelerate the process at their policy meeting next week, ending it by March instead.

The abrupt shift opens the door to the Fed raising interest rates next spring rather than later in the year to curb inflation, marking a significant policy pivot by Chairman Jerome Powell…”

Powell just got appointed for another four-year term as head of the Fed, and it will be interesting to see how quickly they decide to make this pivot and what that does to an already volatile market.

As always, we will continue to watch as things unfold and share what we learn.

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