As follows from the minutes of the last meeting of the US central bank, a growing number of Federal Reserve policymakers indicated that they will be ready to accelerate the cancellation of their bond buying program, if inflation persists, and will start raising interest rates faster.
The data released on Wednesday was the latest sign that worries about rising inflation at the Fed were already entrenched, and many officials at the November 2-3 meeting also suggested that the increased price pressures could prove more resilient.
The longevity and rising price pressures caught the White House and the central bank by surprise and prompted both to respond. US President Joe Biden and Fed Chairman Jerome Powell stressed earlier this week that they will take steps to tackle rising prices for everyday items, including food, gasoline and rent.
While the spike in inflation in late spring and summer has been portrayed as temporary, worries at the Fed have intensified as the numbers continued to be elevated through the fall.
“Various participants noted that [policy-setting] The committee should be ready to adjust the pace of asset purchases and raise the target range of the federal funds rate earlier than the participants currently anticipated if inflation continues to exceed levels consistent with the goals of the committee, ”the Fed said in the minutes.
At a meeting last month, Fed policymakers unanimously decided to begin cutting the central bank’s monthly purchases of Treasuries and mortgage-backed securities by $ 120 billion – a program introduced in early 2020 to help the economy overcome the constraints of the COVID-19 pandemic. As the minutes showed, some of them openly spoke in favor of a faster winding up of the bond purchase program during these discussions.
The baseline rate assumes a complete decline in asset purchases by June next year. Since then, however, some policymakers have increasingly called for faster timelines due to persistent high inflation and job increases to give the Fed more flexibility in raising its benchmark interest rate the next day from current prices. – zero level early next year, if required.
Investor reaction to the minutes was largely subdued, with the S&P 500 up about 0.2 percent after afternoon trading. The yields on short-term Treasuries, the most sensitive to Fed policy expectations, remained stable at slightly higher levels, while the dollar remained near its highest level since July 2020 against a basket of major trading partner currencies.
“V [policy committee] clearly woke up with the knowledge that, even if it declines slightly, inflation is likely to remain above the target for a significant amount of time, ”said Paul Ashworth, chief US economist at Capital Economics.
However, a number of other policymakers at the Fed’s November meeting continued to advocate a more patient approach, wanting more data, although all agreed that the Fed “will not hesitate to take appropriate action to address inflationary pressures that pose risks for its longer period. … – achieving price stability and ensuring employment ”.
But after more robust economic data was released over the past three weeks, all signs point to an acceleration in the phasing out of bond purchases, which is now firmly on the table at the Fed’s next policy meeting on December 14-15.
Data released Wednesday showed that the number of Americans filing new jobless claims fell to its lowest level since 1969 last week, while the Fed’s preferred inflation rate continued to more than double its 2 percent flexible average. central bank target in October.
San Francisco Fed President Mary Daly, one of the most cautious central bank politicians, also said Wednesday that she is poised to wind down its bond buying program more quickly if jobs and inflation data remain stable and that she may see Fed policy. … – next year the rate-setting commission will raise rates once or twice.
According to the FedWatch CME Group’s program, investors currently see a 53 percent chance that the Fed’s overnight rate will rise in May 2022, up from 45 percent on Tuesday.
Inflation rose at the fastest pace in 31 years in October, testing the Fed’s working assumption for most of the year that the surge caused by the pandemic would be temporary as supply bottlenecks eased and demand shifted from goods to services.
Several other policymakers said recently that they, too, are now more comfortable with interest rate hikes early next year than previously expected, noting that the current pace of job growth will allow the Fed to move closer to or in the middle of its maximum employment target. 2022 g.