Jerome Powell's pivot toward a quicker withdrawal of stimulus paves the way for a more agile Federal Reserve in 2022, one that's willing to raise interest rates faster than expected if inflation lingers, or to hold back if the pandemic worsens.

Powell, recently picked for another four years as Fed chair, is responding to hot readings on the economy that caught officials by surprise, including signs that inflation is spreading and labor supply is still limited despite falling unemployment.

Investors can expect stepped-up Fed communication of an evolving outlook for employment and inflation that stresses flexibility amid uncertainty over the pandemic and new virus strains. The ultra-gradual normalization that marked the Fed's retreat from stimulus after the 2008–2009 financial crisis is not a template for this Fed, which is facing something policymakers haven't had to confront in decades: booming growth and soaring prices.