FED signaled a rate hike, and Powell declared inflation as the major threat

In an abrupt policy axis, the Fed accelerated the withdrawal of its asset purchase program and charted a roadmap for a series of rate hikes in the coming years, starting with three hikes in 2022. Powell also said that the US central bank may soon begin to draw liquidity from the financial system by shrinking its huge balance sheet.

"One of the two major threats to returning to maximum employment is actually high inflation," said Jerome Powell at his press conference, adding that the other is a pandemic. "What we need is another long expansion like we've had for the last 40 years."

While investors are betting that the central bank can deliver the economy's notorious soft landing, the Fed is reining in rapid price hikes with gradual rate hikes that don't hurt the gross domestic product financially. Stock prices made their biggest rally since 2020.

Scott Brown, chief economist at Raymond James Financial (NYSE:RJF), said, "The first step for the Fed is open-mouthed operations. They're talking hard. The Fed sees inflation expanding, and people hear about inflation on the nightly news — inflation, inflation, inflation. The Fed is worried about that."

They're not the only ones worried. Faced with falling opinion polls and growing voter anxiety about rapid inflation, President Joe Biden has recently begun to acknowledge the damage done by high prices while continuing to talk about the strength of the economy.

Some economists have expressed doubts about the Fed's ability to sustain expansion, arguing that it has been slow to shift its focus to an inflationary threat that has risen steadily throughout the year.

Wells Fargo (NYSE: WFC) senior economist Mark Vitner said, "The Fed has fallen behind the curve in its rhetoric and actions to contain the threat of inflation. In the past, it has proven very difficult to slow inflation when the economy is at full employment and real GDP is growing faster than its potential. That is where we will be in 2022."

Powell Renomination.

Powell denied that the timing of his center had anything to do with Biden's decision to nominate him for another four years, telling reporters he had started implementing it before the president made a statement on November 22.

The Fed's change comes months after Powell insisted the rise in inflation was temporary and driven by supply chain bottlenecks that would clear up over time.

Powell said the Fed is still seeing inflation fall next year and beyond, and policymakers' forecasts released on Wednesday confirm this. But to ensure that, they are now seeing a much faster rate of interest rate growth than they had predicted just two months ago.

While the Fed statement cited the risk to the economy from new Covid-19 variants, Powell downplayed the potential impact of omicron, arguing that growth is strong and that vaccinated Americans are learning to live with the virus.