NEW YORK (Reuters) – The Federal Reserve, signaling its inflation target has been met, on Wednesday said it would end its pandemic-era bond purchases in March, paving the way for three quarter-percentage-point interest rate increases by the end of 2022.

New economic projections were released after a policy meeting that lasted two days. Officials predicted that inflation would rise to 2.6% next year, down from the September forecast of 2.2%, while the unemployment rate would drop to 3.5%.

Accordingly, the median forecast that the Fed’s overnight benchmark interest rate will need to increase from near zero to 0.90% in 2022. Further increases of 1.6% in 2023 and 2.1% in 2024 would be required in order to bring inflation back up to the central bank’s target of 2%.

STORY:

STATEMENT:

ECONOMIC FUTURES

MARKET REACTION:

STOCKS – The turned up and was at its highest 0.05%

BONDS: They rose to 1.633% and the 2-year yield was 0.7014%. The 2s/10s yield curve remained flat at 75.90 basis points.

FOREX: This added to gain was 0.3% stronger

COMMENTS:

ERIC THEORET GLOBAL MACRO STRATEGIST MANULIFE MANAGEMENT BOSTON

    “The new kind of withdrawal of stimulus should support a flatter curve, lower yields generally and an environment that would favor growth stocks over value stocks.”

    “The fact that the taper has been accelerated, it reduces that inflationary impulse. Even though the taper is accelerating, it will result in higher interest rates. However, once we reach zero balance sheets expansion at the March end, there is a completely different outlook for interest rate because the economy won’t be receiving the stimulus.

    “It’s that withdrawal of liquidity that actually makes the rates even lower and actually favor stocks, like the tech sector, and like utilities that definitely tend to benefit from a lower yield environment.”

     “The taper is actually going to be sufficient to stop the inflation and they actually probably won’t need to hike as much as they say they do.”

ELLEN HAZEN PORTFOLIO MANAGER F.L.PUTNAM INVEESTMENT MANAGEMENT WELLESLEY MASSACHUSETTS

“The stock market is not doing a whole lot if you look at the S&P 500, it has gone up a little bit but not too much. The market has already assumed, had already priced in since Chairman Powell’s congressional testimony a couple of weeks ago the doubling of the taper speed as well as the expectation that the dot plots would rise. We don’t have a lot of surprises in terms of the taper speed or the softening of the language around how transitory inflation might be and how it is no longer limited to certain sectors as it was in the previous statement.”

“You are seeing the yield curve flatten a little bit and that is also to be expected. What he says in his press conference will determine how it is interpreted. It is important to determine whether he speaks about it in terms primarily of inflation, unemployment or labor force participation. I don’t know that you can draw conclusions from the statement itself, it is fairly silent on those matters.”

GREGORY DACO CHIEF U.S. ECONOMIST, OXFORD ECONOMICS, NEW YORK

    “It’s hawkish, but it’s not more hawkish than anticipated. It was widely expected that the QE would be doubled. It is now a passing word. “The labor market has made significant progress.”

    “It seems like they are really putting the focus on inflation and positioning themselves in a way that they could, over the next few months,  proceed with rate liftoff.”

    “It’s largely in line with market expectations. Although markets may be a bit more optimistic than usual, they are still fairly consistent with market expectations. It’s still a fair view of the outlook. Therefore, from a market perspective, I don’t believe that it should lead to a significant tightening financial conditions. Although the outlook for growth looks better in 2019, it is less so in the medium-term. It suggests that there may be a slight flattening in the yield curve.

RANDY FREDERICK VICE PRESIDENT of TRADING and DERIVATIVES CHARLES SCHWAB AUSTIN, TEXAS

    “I think it is a little aggressive… my expectation has always been that we are probably going to get one or two (hikes) and the first one probably does not happen ’til mid year,”

    “It cements the fact that they recognize that inflation is not transitory. This brings the Fed into line with everyone else.

RYAN DTRICK, CHIEF MARKET STRATEGIST LPL FINANCIAL CHARLOTTE NORTH CAROLINA

“The Fed didn’t throw any curve balls. It is as widely expected. They expect inflation to drop by 2.6% next year. This is a positive. That could be because as much as three rate hikes next year could potentially put a lid on inflation.”

“From the headline, there are no major surprises. As we speak the S&P and the Dow are turning green. The Q&A is what we’ll focus on next but the market seems to be taking things in stride. It didn’t surprise anyone.”

“Powell painted this picture two weeks ago when he spoke in front of congress and potentially calmed the fears over tapering. And today did little to change that narrative.”

“(This week’s sell-off) was a combination of consolidating gains from the week before but also some skittishness ahead of what was potentially the last major market event of this year.”

“The rest of the year should be fairly quiet. It’s a nice feeling to get past this major event as we head into what is widely known as the ‘Santa Claus rally,’ historical strength late in the month of December.”

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO

    “It’s a little bit more aggressive than I think Powell talked about in front of Congress. It’s obvious that the Fed will increase their pace of removing bond purchases… The market is volatile, and it will continue to be volatile tomorrow as investors attempt to determine what should happen or what’s next.