Is a Fed Interest Rate Hike Coming? Here's What We Know

Ever since Fed Chair Jerome Powell removed the word "transitory" from the inflation conversation, the Federal Reserve has been feeling the heat. One way the central bank could potentially tame hyper-inflation is by raising federal interest rates, which have been near zero since the start of the COVID-19 pandemic.

With tapering plans in place, will an interest rate hike be next? Here's what we know about the Fed's view on interest rates in the near future.

The Fed has a meeting scheduled on Dec. 15 to discuss the action plan for next year's interest rate increases. The decision will have a lot to do with inflation expectations going into 2022.

The Fed could announce interest rate plans later in the week after the meeting wraps up. Also, with Democrats approving a debt ceiling increase and avoiding default within hours of the deadline, the Fed could announce plans to shrink its $8.7 trillion in debt.

With bond purchasing poised to taper off at a faster rate in the new year, the Fed could position upwards of three interest rate increases in 2022, and another three to four in 2023. These interest rate hikes will be incremental to avoid shocking the economy and sending the U.S. into a crash.

Currently, half of all Fed officials expect at least one rate hike in 2022. They could announce a firmer estimation later this week or next.

On Dec. 13, Morgan Stanley CEO James Gorman told CNBC, "If I were the Fed, I would start moving earlier rather than later."

Gorman thinks that raising interest rates now could prevent a market and economic downturn in the future. He's confident that rising interest rates are coming, but he thinks that the Fed should stow away some incremental increases for later on to quell future inflation pushes. "If I were the Fed, I would start moving earlier rather than later. Store away some ammunition and accept the reality," he added.

The CPI (consumer price index) rose 6.8 percent in the 12 months ending in November, which means that inflation continues to creep up.

The New York Fed conducted a Survey of Consumer Expectations in November that showed Americans under 40 years old expect the median inflation rate in three years to hit 3.5 percent. Meanwhile, Americans over 60 years old expect it to be higher at 4.7 percent.

Those making below $50,000 annually expect inflation to be higher at that time than those making six figures or more.

What that says is that different groups of people view inflation differently. While we don't know what will happen in three years, we do know that inflation is currently dipping into people's leftover funds. Increasing interest rates could slow the economy and subsequently produce slimmer inflation rates.