The Federal Reserve has signaled that it is likely to hasten the pace of its tapering of its asset purchasing over concern that more needs to be done to tackle inflation. As a result, speculation is rising about whether it will raise interest rates sooner than expected.

Officials at the Fed have signaled for months that they were hungering for a curtailment of pandemic-era stimulus programs to arrest the growth of inflation. Now the central bank is giving signals that it is ready to cut back sharper and sooner than planned.

Last week, Fed Chairman Jerome Powell testified before Congress that he supports a faster pullback of the Fed's stimulus policies. Pointing to new risks from the Omicron variant of COVID-19 and the continued pain of global supply chain bottlenecks, Powell insisted that it could necessitate a swifter end to its tapering off of asset purchases.

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” said Powell in testimony before the Senate Banking Committee.

This suddenly more hawkish outlook reflects just how much the Fed’s thinking has shifted recently. Throughout the year, Powell had stuck to his contention that inflation would be “transitory,” but that view has been all but abandoned as inflation leapt to over three times the Fed’s desired rate with prices for basic goods creeping to levels not seen in decades.

Initially, the asset taper that Powell announced at the start of November had a timeline laid out for when it would be executing its curtailment of its stimulus policies. However, Powell maintained from the start that the Fed would look to remain flexible if it saw a need to shift its position again.

For all the clarity the Fed has attempted to offer on its tapering, it has been less keen in offering a set idea about when it would begin to raise interest rates, which have been held at near-zero since the start of the pandemic. In a meeting that preceded the Fed’s taper decision, officials projected a rate hike by 2023, but left open the chance of one coming sooner in 2022.

After the taper decision was revealed, Powell said that the Fed would act according to the situation to maximize its flexibility going into each new phase the U.S economy finds itself in. While rate hikes could have a chilling effect on investors, inaction could be even worse.

"We try to focus on what we can control," Powell told reporters. "We have to be humble about what we know about this economy."

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