Fed readies rate-hike tools to battle inflation

The Federal Reserve on Wednesday stepped up efforts to fight-back inflation that's surging at its fastest pace since the 1980s.

Taking note of price surges that have spread further and lasted longer than first thought, Fed Chief Jerome Powell said the central bank agreed to speed up the exit from its massive bond-buying program by doubling the drawdown per month. The goal? To fully end - by March 2022 - the extraordinary assistance used to prevent the economy from falling into a deep recession during the health crisis.

Powell says the economy is now at risk of overheating.

"There's a real risk now, we believe, I believe that inflation may be more persistent and that may be putting inflation expectations under pressure and that the risk of higher inflation becoming entrenched has increased....And I think that's part of the reason behind our move today is to put ourselves in a position to be able to deal with that risk."

Wednesday's decision to more quickly scale back bond purchase is widely seen as a first step towards eventually raising interest rates.

The Fed kept its key interest rate near zero on Wednesday- where it's been seen March 2020 - but policymakers indicated the era of record-low interest rates will soon come to an end.

"With inflation having exceeded two percent for some time, the committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee's assessments of maximum employment. All FOMC participants forecast that this remaining test will be met next year."

Fed projections released following a two-day meeting see three rate hikes next year, which was inline with market expectations and stock prices higher.

But there are a few wild cards, which could ultimately determine when and if all those rate hikes will be needed. Powell says he's keeping an eye on what happens with the health crisis, which could slow economic growth like it did earlier this year, or lead to an even tighter labor market, which could push wages up and prevent inflation from coming down.