Chair Jerome Powell said the Fed could soon announce a withdrawal of bond purchases at its next meeting in November.
Washington — The Federal Reserve Board said Wednesday that it could start raising benchmark rates sometime next year, earlier than expected three months ago, and high inflationary pressures could continue. I’m worried about that.
In a statement, the Fed also said that if the economy continued to improve, it would likely begin to slow down the pace of monthly bond purchases “immediately.” Bond purchases are aimed at lowering long-term lending rates to facilitate borrowing and spending. At a press conference, Chair Jerome Powell said the Fed could soon announce a withdrawal of bond purchases at its next meeting in November.
In summary, the Fed’s plans reflect the belief that the economy will fully recover from the pandemic recession and that the extraordinary support it has provided can be quickly regained after the coronavirus paralyzed the economy 18 months ago. I am. As the economy strengthens steadily, inflation has accelerated to 30-year highs, increasing pressure on the Fed to withdraw.
Equity and fixed income traders seemed happy with the Fed’s policy statement on Wednesday, at least initially. Immediately after it was issued, the Dow Jones Industrial Average jumped from 1% to 1.5% that day. Yields on 10-year government bonds fell from 1.32% to 1.30%.
The economy recovered faster than many economists expected, but growth has slowed recently as the number of cases of COVID-19 surged and labor and supply shortages hampered manufacturing, construction and other sectors. .. The US economy has returned to pre-pandemic scale, and the unemployment rate has fallen from 14.8% immediately after the pandemic to 5.2%.
At the same time, inflation surged due to a shortage of semiconductors, automobiles, furniture and electronics, combined with a resurgence of consumer spending and supply chain turmoil. Consumer prices rose 3.6% from a year ago to July, according to indicators recommended by the Federal Reserve Board. This is the sharp rise since 1991.
In the updated quarterly forecast, Fed officials will raise key short-term interest rates once in 2022, three times in 2023 (one more than expected in June) and three times in 2024. I’m expecting it. Business loans have been fixed at nearly zero since the outbreak of the pandemic in March 2020.
However, the Fed will begin pairing or tapering monthly bond purchases before it begins raising rates. The central bank began declining $ 120 billion a month in government bond and mortgage purchases last year after the economy made “substantial further progress” towards the Fed’s goals of maximum employment and an average annual inflation rate of 2%. It suggested that there was a possibility of doing so. ..
In a statement released after the two-day meeting that ended Wednesday, the Fed “determines that slowing the pace of asset purchases may soon be justified if progress continues largely as expected.” Said.
Inflation has risen enough to meet the Fed’s test of substantial progress. And Powell said at his press conference that in his view employment “almost passed” the test.
Taken together, the Fed’s retreat in bond purchases and its ultimate rate hike means that some borrowers will have to pay more for mortgages, credit cards and business loans each time they occur.
The Federal Reserve Board has not hinted at how quickly it will taper purchases. However, it is widely expected to reduce government bond purchases by $ 10 billion a month and mortgage-backed securities by $ 5 billion.
Powell’s tricky job is to show investors, consumers and business leaders how to start withdrawing financial support right away, reassuring investors, consumers and business leaders that they won’t move fast enough to prevent them from recovering from a recession. Powell has reiterated his belief that current high levels of inflation will decline as the economy normalizes, partly because central banks are not yet close to raising interest rates. It states.
However, changes in the Fed’s interest rate forecasts suggest that central banks are gradually approaching that. In March, 18 officials on the policy-making committee predicted that they would not raise rates until after 2023. In June, the Commission revised its forecast to raise rates twice in 2023. Like next year.
In the latest forecasts, policymakers also show that this year’s economic growth is expected to grow slowly from the June forecast of 7% to 5.9%. Inflation is expected to be 4.2% by the end of this year, but next year’s inflation forecast has been raised from 2.1% to 2.2%.
Powell also addresses key ethical issues surrounding the investment and transactions of some federal regional bank governors. Federal Reserve Bank of Dallas Governor Robert Kaplan said in 2020 millions of dollars worth of individuals such as Amazon, Chevron, Facebook and Google, while the Federal Reserve is taking special steps to boost the economy. The financial disclosure revealed that it had traded shares. ..
Last year, Boston Fed Governor Eric Rosengren invested in a real estate investment trust holding mortgage-backed securities of the type purchased by the Fed as part of an effort to lower borrowing rates. And Powell himself owns municipal bonds, which the Fed bought for the first time last year to support the market.
A spokesman said last week that the Fed had a “fresh and comprehensive view” of the rules surrounding public servants’ financial holdings. Investing is permitted under the Fed’s current rules, and Rosengren and Kaplan have promised to sell their shares and reinvest their earnings in index funds and cash.
When asked about this topic at a press conference, Powell said: This will be a thorough and comprehensive review. We collect all the facts and consider ways to further strengthen the rules and standards. “
As growth and inflation are recovering in many countries, the Fed’s expected policy changes will follow similar steps by other central banks in the developed world. The European Central Bank said earlier this month that it would cut bond purchases, but has not yet said it will end altogether. Central banks in Canada and Australia have also curtailed bond purchases.
APEconomics writer Martin Crutsinger contributed to this report.
The Federal Reserve Board predicts that interest rates could rise by next year
Source link The Federal Reserve Board predicts that interest rates could rise by next year