Tuesday, November 30th, 2021
“Inflation risk is increasing”
Fed chief is considering earlier end of acquisitions
The US Federal Reserve is no longer hoping for inflation to subside quickly. Fed chairman Powell also agrees with the financial markets that the loose monetary policy could end earlier than initially thought. The billion dollar securities purchases would then have to be shut down faster.
Given the high inflation, the US Federal Reserve is looking to reduce its bond purchases more quickly on the way to a rate hike. It is appropriate to think about completing the process known as tapering a few months early, Fed chief Jerome Powell told a congressional committee. The economy is very strong and at the same time inflationary pressure is high. “And I think the risk of higher inflation has increased,” Powell said.
The Federal Reserve has been cutting back its securities purchases by $ 15 billion a month since mid-November. The total purchase volume of recently 120 billion dollars per month could thus be melted down by the middle of next year. This is a prerequisite for an interest rate hike. However, the central bank expressly reserved the right to increase or decrease the pace if necessary.
Rate hike in the second quarter?
The outgoing Fed Vice President Richard Clarida had already signaled that accelerated tapering could be discussed at the interest rate meeting in December in view of the increased risk of inflation. Fed Director Christopher Waller was even more specific and called for the pace of dismantling to be doubled. Then the Fed could have melted its bond purchases as early as April. This would pave the way for a rate hike in the second quarter.
The Fed is currently keeping the key rate in a range of zero to 0.25 percent. The Fed’s preferred measure of inflation is personal consumer spending, which excludes energy and food costs. This annual inflation rate was 4.1 percent in October, well above the level of two percent targeted by the Federal Reserve. Powell said he expected high inflation through the middle of next year. At the same time, he signaled that the Fed could say goodbye to the phrase that inflation is temporary.