Why the Fed feels now is time to tighten credit more quickly

WASHINGTON (AP) — For months, Federal Reserve Chair Jerome Powell responded to surging inflation by counseling patience and stressing that the Fed wanted to see unemployment return to near-pre-pandemic levels before it would raise interest rates.

But on Wednesday, Powell suggested that his patience has run out. High inflation has not only persisted but accelerated to a nearly four-decade high. Average wages are rising. Hiring is solid, and unemployment is falling. All those trends, Powell said at a news conference, have led him and the rest of the Fed's policymakers to decide that now is the time to speed up the Fed's tightening of credit.

The central bank said it will reduce its monthly bond purchases — which are intended to lower long-term rates — at twice the pace it had previously set and will likely end the purchases in March. That accelerated timetable puts the Fed on a path to start raising rates as early as the first half of next year.

What's more, the policymakers collectively forecast that they will raise their benchmark short-term rate three times next year — a significant increase from September, when the 18 officials had split over whether to hike even a single time in 2022. The Fed’s key rate, now pinned near zero, influences many consumer and business loans, including mortgages, credit cards and auto loans. Rates for those loans may start to rise, too, next year.

The policy changes reflect an abrupt shift by Powell and the Fed to focus more on wrestling inflation under control and less on further reducing unemployment.

At his news conference after the Fed's latest policy meeting, Powell stopped short of declaring that the job market had fully recovered from the pandemic recession. But he said “rapid progress” had been made toward the Fed's target of...