Having kicked off the unwinding of the crisis-era stimulus this month, the U.S. Federal Reserve (Fed) may accelerate the pace of the taper next year, according to a Bloomberg report citing a client note from Goldman Sachs.
- The central bank will double the pace of scaling back its liquidity-boosting asset purchases to $30 billion per month from the current $15 billion, Goldman economists said, predicting three rate hikes in 2022 and two in 2023.
- The new projections mean the asset purchase program would end in March.
- The investment banking giant expects the first rate hike from near zero in June of next year.
- “The increased openness to accelerating the taper pace likely reflects both somewhat higher-than-expected inflation over the last two months and greater comfort among Fed officials that a faster pace would not shock financial markets,” economists led by Jan Hatzius noted.
- The Fed cut rates to near zero and began purchasing assets worth $120 billion per month following the coronavirus-induced crash of March 2020.
- The massive liquidity injections led to unprecedented risk taking across all corners of the financial market, including bitcoin.
- Minutes from the Fed’s November meeting released Wednesday showed a growing number of policymakers were ready to speed up the taper and raise interest rates if inflation continues to run high.
- Faster unwinding of stimulus, if any, may weigh over bitcoin, which remains vulnerable to fed tightening, and asset prices, in general. The cryptocurrency fell almost 7% on Friday, amid a massive pullback in the financial markets, as concerns over a new coronavirus variant dampened risk appetite.