FedXinhua Headlines: U.S. Fed turns hawkish to tame inflation, posing risks to emerging markets asset|said|posing|policy|turns|Fed|a

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-- The Fed is now on track to end its asset purchases by March, three months earlier than initially planned.
-- Projections showed that the central bank could raise the federal funds rate three times next year from its current record-low level of near zero.
-- Analysts found that financial spillovers to emerging markets from U.S. monetary policy depend on the drivers of higher yields and domestic conditions in emerging markets.

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Photo taken on Dec. 15, 2021 shows the U.S. Federal Reserve in Washington, D.C., the United States.(Photo by Ting Shen/Xinhua)
WASHINGTON, Dec. 18 (Xinhua) -- The U.S. Federal Reserve has made a hawkish pivot to remove its pandemic-era monetary stimulus more quickly than previously expected in a bid to combat surging inflation.
While investors have begun preparing for the Fed to start raising interest rates next year, a faster tightening in U.S. monetary policy could push up global borrowing costs sharply and cause an adverse financial spillover to emerging markets and developing economies, particularly those with high debt levels, economists said.
HAWKISH PIVOT TO TAME INFLATION
The Fed on Wednesday laid out a plan to reduce its monthly asset purchases by 30 billion U.S. dollars starting in January, doubling the pace it announced a month earlier, in response to rising inflation pressures.
"We are phasing out our purchases more rapidly because with elevated inflation pressures and a rapidly strengthening labor market, the economy no longer needs increasing amounts of policy support," Fed Chairman Jerome Powell said Wednesday afternoon at a virtual press conference after wrapping up a two-day meeting.
"In addition, a quicker conclusion of our asset purchases will better position policy to address the full range of plausible economic outcomes," Powell said, noting the risk of higher inflation becoming entrenched "has increased."
The U.S. consumer price index rose 6.8 percent in November from a year earlier, the fastest annual pace in almost 40 years, according to the U.S. Labor Department.
The Fed is now on track to end its asset purchases by March, three months earlier than initially planned, as it exits from the ultra-loose monetary policy enacted at the start of the pandemic.
Meanwhile, Fed officials' median interest rate projections released Wednesday showed that the central bank could raise the federal funds rate -- the benchmark interest rate -- three times next year from its current record-low level of near zero.
That marks a major shift from the last time forecasts were updated in September, when 18 Fed officials were evenly split over the need to raise rates in 2022.
"The Fed has made a full pivot from viewing inflation as transitory to more persistent and problematic. The Fed is clearly worried about inflation becoming more entrenched," said Diane Swonk, chief economist at major accounting firm Grant Thornton, adding a more persistent inflation could justify even more rate hikes than the Fed has penciled in for the year.

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A customer shops at a Target store in New York, the United States, Dec. 10, 2021. (Xinhua/Wang Ying)
However, it remains questionable whether the Fed's current policy shift is sufficient to bring U.S. inflation back toward the central bank's target of 2 percent, Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua.
"U.S. monetary policy will remain excessively loose over the next few months. The Fed will still be buying bonds and interest rates will remain negative in inflation-adjusted terms," Lachman said.
"While I do believe that we will get some reduction in inflation as global supply chains are repaired, I do not believe that inflation will decline in 2022 to the 2.6 percent rate that the Fed is forecasting," he added.

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