Federal Reserve policymakers said they will cut back on their stimulus more quickly at a moment of rapid inflation and strong economic growth, capping a challenging year with a pronounced policy pivot that could lead to higher interest rates in 2022.
At the conclusion of their two-day meeting, the central bank released a policy statement and a new set of economic projections. The statement shows that officials decided to slow the monthly bond-buying that they had been doing to keep money flowing through markets and to bolster growth more rapidly.
The pace at which officials slashed their purchases was twice as fast as they had announced last month, which would put them on track to end the program in March. The policy statement said that the decision was made in light of inflation developments and the improvement in the labor market.
If the central bank is able to raise its policy interest rate quickly, it will be able to keep inflation under control. The Fed projected that officials would make three interest rate increases next year.
The Fed said in its new statement that it will be appropriate to maintain the target range until labor market conditions have reached levels consistent with the committee's assessments of maximum employment.
The Fed is adding less juice to the economic expansion by slowing bond-buying and moving toward rate increases. While officials spent much of the year laying out a patient path for winding down their pandemic-era help for the economy, they have turned more proactive in recent weeks as they have become more worried that a burst in inflation this year could linger. The Fed is supposed to keep prices stable while fostering a strong labor market, but those two goals are increasingly in tension.
The pace of increase in consumer prices was the fastest since 1982. The preferred inflation gauge has moved up and down slightly.
The Fed expected prices to go up this year. Goods affected by the Pandemic have fallen victim to tangled supply chains and have been put into rent and shelter. In big categories, upward trends can last longer. Consumer inflation expectations could also help keep prices up.
The Fed has been watching the evidence very carefully, and most officials still believe that inflation will fade back to their 2 percent annual average goal as global shipping routes clear through backlogs, factory production increases to meet demand, and consumers shift toward more normal spending patterns after scrambling to buy couches.
The initial plan to slow their bond-buying program was announced after the November meeting.
The Fed chair signaled late last month and early in December that the central bank was more focused on managing the risk that rapid price gains might linger.
Mr. Powell said that the risk of higher inflation had increased.
The labor market recovery has taken Fed officials by surprise. The unemployment rate fell to 4.2 percent, down from the double-digits heights it reached early in the Pandemic.
Some people who have retired are still out of the labor market because of a lack of child care, while others are out of the labor market because of a lack of virus fears. That makes judging how close the economy is to the Fed goal of maximum employment more difficult.
Mr. Powell has said that full employment could be reached next year, but he also has said that he is unsure about that call.
He said at a news conference in November that there was room for a lot of humility.
The news conference is scheduled to start at 2:30 pm.
