The Federal Reserve on Wednesday sent a clear message to markets: Prepare for interest rate hikes next year.

In its final policy-setting meeting of 2021, the Federal Open Market Committee published projections for where its 18 members could see interest rates going next year.

All 18 see the case for at least one 25 basis point hike next year, with the median member forecasting three rate hikes before 2022 is over. The Fed on Wednesday laid out the game plan: end the Fed’s program of asset purchases in a few months, and then focus on rate policy to quell unwanted inflationary pressures.

“We’re in a position where we’re ending our taper by March, in two meetings, and we’ll be in a position to raise interest rates as and when we think it’s appropriate,” said Fed Chairman Jerome Powell at a press conference Wednesday afternoon.

Just three months ago, the Fed had been on the fence about rate hikes. In the FOMC’s September meeting, the committee was split 50-50 on whether to lift rates off from the current target range between 0% to 0.25%.

Wall Street analysts very quickly adjusted their forecasts for interest rates next year due to the “hawkish” surprise of a Fed more eager to normalize policy than expected.

At BofA Global Securities, analysts said they now expect the first rate hike to come in March as opposed to their previous call of liftoff in June. Evercore ISI agrees that a rate hike as soon as March is on the table.

“We read the Fed statement and the SEP as on the hawky side of hawkish expectations going in — including with a three hike baseline for 2022 — though not to an extreme degree and some components go the other way,” wrote Evercore ISI’s Krishna Guha on Wednesday.

Fed funds futures contracts quickly re-priced. Bets on Fed actions priced in a 40% chance of a rate hike in March 2022, a step up from the 31% odds priced in prior to Wednesday’s meeting.

Hiking into a flat curve?

Powell did not appear concerned about the environment into which the Fed may be hiking rates.

High inflation readings are now pushing Fed officials into a more proactive stance on drawing down its pandemic-era stimulus. Although the labor market still has under 4 million people out of work compared to February 2020 levels, the Fed is encouraged by labor market reports that continue to show payroll gains and lower unemployment rates.

Bond markets, however, may be questioning the Fed’s ability to raise rates without triggering an abrupt end to the recovery.

The yield curve, which maps out the yields of U.S. Treasuries across different durations, serves as a proxy for investor bets on future growth prospects. Generally speaking, higher longer-term bond yields (and a steeper curve) correspond with optimism over longer-term conditions.