WASHINGTON – Officials from the Federal Reserve in discussions earlier this month said the central bank would “not hesitate” to take appropriate action to address inflationary pressures that pose risks to the economy.
In minutes released Wednesday at the Fed’s November 2-3 meeting, Fed officials argued that the surge in inflation this year was still likely to be temporary, while acknowledging that the rise in prices was more significant than expected.
The protocol encompassed a meeting where the Fed voted to take the first step towards ditching the massive support it provided to an economy that found itself in recession last year after widespread lockdowns to contain the COVID virus.
At its November meeting, the Fed approved a cut in the number of Treasury bonds and mortgage-backed securities it bought to put downward pressure on long-term interest rates.
The committee approved a $ 15 billion cut in November and another $ 15 billion in December from the $ 120 billion in monthly bond purchases it made. This cut was expected to continue until the bond buying program is phased out in the middle of next year.
Inflation in recent months has reached a level unprecedented in decades. Fed Chairman Jerome Powell and other Fed officials have argued that price pressures are likely to be temporary and disappear once issues such as supply chain bottlenecks are resolved.
But the Fed Minutes showed growing concern that unwanted price pressures could last longer, and the Fed must be prepared for a faster cut in bond purchases or even an earlier increase in the Fed’s benchmark interest rate to ensure inflation does not come down. out of hand.
“Various participants noted that the committee should be ready to adjust the pace of asset purchases and raise the target range for the federal funds rate earlier than currently anticipated by the participants if inflation continues to exceed levels in line with the goals of the committee,” the minutes said. …
Katie Bostjancic, chief financial economist at Oxford Economics in the US, said she still believes the Fed will not rush to raise rates. She bases this opinion on her forecast that inflation will decline significantly by mid-2022, and the Fed’s maximum employment target will not be met until the end of next year.
But she said that, given the significant rise in inflation reported in October and heightened inflation concerns from some Fed members, she expects the central bank to speed up the bond cut. Under this scenario, the cut would be completed by the end of April rather than June, with the first rate hike coming in September rather than her earlier forecast of a rate hike starting next December.
It is important to note that the minutes noted that “price increases have become more widespread,” she said, with the increase driven by higher electricity costs, faster wage increases and higher residential rents.
In the spring of 2020, the Fed’s policy rate was cut to a record low of 0 percent to 0.25 percent as the Fed focused its efforts on preventing the COVID recession from escalating into a deeper recession.
Since the Fed meeting in November, several Fed officials have publicly expressed their willingness to accelerate the pace of phasing out monthly bond purchases.
Federal Reserve Deputy Chairman Richard Clarida said last week that he will carefully study the incoming economic data ahead of the next Fed meeting on December 14-15 to determine whether it would be advisable to increase the rate of decline in bond purchases.
By Martin Krootsinger