by Martin Krutzinger
WASHINGTON (AP) – Federal Reserve officials said in discussions earlier this month that the central bank would “not hesitate” to take appropriate action to address inflationary pressures that pose risks to the economy.
In minutes released Wednesday of the Fed’s November 2-3 meeting, Fed officials said the spike in inflation seen this year was still likely to be temporary, while acknowledging that the rise in prices was higher than expected.
The minutes covered a meeting in which the Fed voted to take the first steps to withdraw the massive support it provided to an economy that was pushed into recession last year after a sweeping lockdown to contain the COVID virus.
At its November meeting, the Fed approved cuts in the amount of Treasury bonds and mortgage-backed securities it was buying to put pressure on longer-term interest rates.
The committee approved a $120 billion cut in monthly bond purchases by $15 billion in November and $15 billion in December. These cuts were expected to continue until the bond purchase program was terminated by the middle of next year.
Inflation in recent months has reached levels not seen in decades. Fed Chairman Jerome Powell and other Fed officials have argued that price pressures are likely to be transient and go away once problems such as supply chain bottlenecks are resolved.
But Fed minutes showed a growing concern that unwanted price pressure could last longer, and that the Fed should be prepared to move to more quickly reduce bond purchases or ensure the Fed’s benchmark interest rates remain low. The rate should start increasing soon so that inflation does not happen. out of hand.
Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate as soon as possible if inflation is currently estimated at levels consistent with the Committee’s objectives. keeps going on over and over,” Minutes said. ,
Cathy Bostjanic, chief US financial economist at Oxford Economics, said she still believes the Fed will not rush to hike rates. She bases the outlook on her forecast that inflation will moderate significantly by the middle of 2022 and that the Fed’s maximum employment target will not be reached until the end of next year.
But she said she expects the central bank to accelerate bond cuts, given the massive inflation gains for October and rising inflation concerns by some Fed members. Under that scenario, the cuts would be completed by the end of April instead of June, with the first rate hike coming in September instead of the earlier forecast of a rate hike starting in December next year.
She said it was important that the minutes noted that “price increases had become more widespread” with higher energy costs, faster wage gains and increased residential rents being driven by.
The Fed’s policy rate was cut in the spring of 2020 to a record low of 0.25% from 0% as the Fed focused its efforts on keeping the COVID-19 crisis from spiraling into a deep recession.
Since the Fed’s November meeting, some Fed officials have publicly expressed openness to accelerate the pace of closing monthly bond purchases.
Fed Vice Chairman Richard Clarida said last week that he would closely monitor economic data ahead of the Fed’s next meeting on December 14-15 to determine if it was appropriate to accelerate the pace of bond buying cuts. will happen or not.