Mariner S. Eccles Federal Reserve Building in Washington, DC, Friday, September 17, 2021.
Stephanie Reynolds | Bloomberg | Getty Images
The Federal Reserve is undergoing a major shift to initiate the abolition of the central bank’s large-scale pandemic easing policy, which could raise interest rates faster than market pricing.
Comments from Fed officials suggest that the Fed is likely to decide to double its tapering pace to $ 30 billion a month at its December meeting next week. increase. The first discussion could begin shortly after the December meeting, when it is time to raise interest rates and to submit new economic and federal funds rate forecasts with Fed officials by next year.
There is still no consensus on when to start hiking, but it is clear that the faster taper is designed to be flexible in responding to rate hikes as soon as the Fed is in the spring. The market does not seem to expect a top-notch rate hike until summer.
St. Louis Fed Governor James Bullard hopes to close asset purchases in the first quarter on Friday, allowing the Fed to position itself “immediately” and make all meetings “live” to allow rate hikes. Said. Several other officials have openly spoken about the potential for multiple rate hikes next year and the potential need for rate hikes to combat inflation.
In last week’s testimony, Federal Reserve Chair Jerome Powell said another wave of virus or a major concern for new variants was inflation, as it could keep people away from work and exacerbate supply constraints. When I said yes, I supported the idea of a faster taper and made a dramatic change. This was a major change for Powell and the Fed, as the previous wave of viruses was primarily causing concerns about weak demand rather than tight supply. Until the taper was announced in November, Fed officials were largely silent on the interest rate outlook.
Economic data for November played a major role in the Fed’s shift. The consumer price index showed higher and broader inflation. This added to the concern about how rising house prices will boost the CPI in the coming months.
Employment reports in November showed that salaries were growing significantly, but few workers left the bystanders and returned to the employment market. The December development, with a workforce increase of about 600,000, seems to have helped little to change the outlook for the tight employment market.
Meanwhile, the economy appears to be accelerating again after the third quarter slump, raising questions about whether the Fed needs to continue buying assets and raising zero rates until next summer.
The central bank chief did nothing in his testimony to discourage the market that the current pricing of the two rate hikes next year was wrong.
Powell and the Fed have shown that they will provide the market with at least a few months of lead time for policy changes. Therefore, if the Fed wants to hike for maximum flexibility, it will discuss how far and how fast it should start immediately, even immediately after the December meeting. Is required.
A major shift is underway in the Federal Reserve, and we can see a quicker end to its easy policy.
Source link A major shift is underway in the Federal Reserve, and we can see a quicker end to its easy policy.