Investors Expect the Fed to Raise Rates Quickly to Combat Inflation

November 1, 2021

As inflation rises at the fastest pace in decades, investors expect the Federal Reserve to accelerate its plans to tighten fiscal policy, according to a recent survey from CNBC.

The survey’s respondents overwhelmingly believe that the Fed will announce this week its intention to begin tapering its monthly $120 billion purchases of Treasuries and mortgage-backed securities. Current expectations are that the Fed will reduce these monthly purchases by $15 billion per month, which would bring them to an end by May.

The consensus for when the Fed would raise interest rates moved forward to September, up from December in the previous survey. A large portion of investors expects the Fed to act even faster, with 44% of the respondents saying they expect the Fed to raise rates by July.

Many of the survey’s respondents seem critical of the modest pace the Fed has outlined. The majority, 60%, said that inflation is already a big enough concern that the central bank should end its asset purchases immediately.

The criticisms are also bolstered by the fact that inflation has become the foremost risk facing the economy, according to respondents, surpassing Covid. The majority, 64%, say that the recent inflationary pressure is likely to be temporary, but they do expect it to get worse before it gets better. Only 26% say that inflation has peaked, while the rest expect prices to continue climbing through January, only meaningfully easing in the early spring.


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