Worries about inflation dominated the Fed’s November policy meeting, with some politicians encouraging the central bank to act faster to cut back on its bond buying program to give it the flexibility to raise interest rates more quickly if necessary, the Fed’s November meeting minutes showed.
The Fed was buying up $ 120 billion in bonds every month and keeping interest rates close to zero – policies that helped make borrowing cheap and keep money flowing through the economy. Earlier this month, the Fed took the first step towards ending support for the economy by announcing that it will begin to cut purchases of Treasury bonds and mortgage-backed securities by $ 15 billion a month starting in November.
“Some participants suggested that a decrease in the rate of net asset purchases of more than $ 15 billion each month could be justified so that the committee could better adjust the target range for the federal funds rate, especially in light of inflation. pressure, “the minutes read, citing the Federal Open Market Committee, which sets interest rates.
These comments reflect the central bank’s uncertainty about how long supply chain kinks and price increases could continue. Fed officials maintained their expectations that inflation “will decrease significantly over the course of 2022,” but policymakers “indicated that their uncertainty about this estimate has increased.”
“Many participants pointed to considerations that may indicate that higher inflation may be more resilient,” officials said.
What you need to know about US inflation
Inflation has surged over the past year, posing a challenge for the Fed, which is responsible for keeping prices stable and promoting maximum employment. Prices have continued to rise since the last Fed meeting, and this trajectory could push policymakers to cut their economic support faster than previously expected.
Inflation was on the rise due to supply chain disruptions, surging demand for goods and higher wages, which led to higher prices; Politicians noted that higher rents and energy prices also played a role. Inflation has become a persistent problem for the White House, lowering President Biden’s approval ratings and complicating the path to a full economic recovery from the pandemic.
Data released Wednesday showed that prices rose at the fastest pace in three decades as consumers face higher gas and food prices. Prices rose 5 percent in the 12 months to October, according to the Personal Consumer Spending Index, the Fed’s preferred measure of inflation.
Richard H. Clarida, vice chairman of the Fed, hinted last week that it would be wise for policymakers to consider speeding up the slowdown in bond purchases at the next meeting, saying that he will “take a close look at the data we get between now and the December meeting.” …
Mary Daley, president of the Federal Reserve Bank of San Francisco, told Yahoo Finance this week that she is ready to support a faster termination of the bond buying program if economic trends do not improve.
Understand the supply chain crisis
“If things continue to go the way they did, then I fully support the accelerated pace of the gradual dose reduction,” said Ms Daly.
Officials have tried to decouple their path to slower bond purchases from their interest rate plans. But investors increasingly expect rate hikes to begin in mid-2022.
The Fed said it wants to achieve full employment before raising borrowing costs to cool the economy. Fed Chairman Jerome H. Powell said he didn’t believe the job market had yet passed the test. More than four million jobs are still missing compared to the number of people who worked before the pandemic.
At the meeting, officials discussed why more workers did not return to the labor market, with several policymakers suggesting that “labor force participation will be structurally lower than in the past, and some of these participants pointed to the high retirement rates recorded since the very beginning. pandemics “. Others went on to point to factors associated with the pandemic, such as childcare restrictions and concerns about the virus.
There have been some positive signs in recent weeks. Household spending rose 1.3% in October compared with September, despite a sharp rise in prices, the US Department of Commerce said Wednesday. Data released by the Labor Department on Wednesday also showed that initial jobless claims fell to their lowest level since 1969, dropping to 199,000 last week. But some economists have warned that the weekly data could be overstated by seasonal factors, and the number of statements could increase in the coming weeks.