If inflation stays high, the Fed is ready to raise interest rates, minutes show

The Federal Reserve expressed concern about inflation at a meeting earlier this month, saying it was willing to raise interest rates if prices continued to rise.

On Wednesday, the Fed’s interest rate setting committee released the minutes of its November session, which first signaled that it could dial back all the financial support it had provided during the pandemic. ..

The summary of the meeting shows that there is a lively debate about inflation, and members emphasize their willingness to act if the situation continues to worsen.

“Various participants are now predicting the federal funds rate target range as the Commission adjusts the pace of asset purchases if inflation continues to rise above a level consistent with the Commission’s objectives. He said he needed to be prepared to pull up faster than he was, “the minutes said. ..

Authorities emphasized a “patient” approach to incoming data, showing that inflation is running at the highest pace in over 30 years.

But they also said, “Don’t hesitate to take appropriate action to deal with inflationary pressures that pose risks to long-term price stability and employment targets.”

Following a two-day session ending on November 3, the Federal Open Market Committee will begin reducing its monthly bond purchase program, which had purchased at least $ 120 billion in Treasury securities and mortgage-backed securities. I showed that.

The goal of this program was to keep funds flowing in these markets while keeping broader interest rates at low levels to boost economic activity.

Federal Reserve Chairman Jerome Powell will attend a hearing of the House Financial Services Commission on September 30, 2021 at Capitol Hill, Washington, USA.

Aldrago | Reuters

In a post-meeting statement, the FOMC said that “substantial further progress” in the economy could save $ 15 billion in monthly purchases. That’s $ 10 billion for government bonds and $ 5 billion for MBS. According to the statement, the schedule will be maintained until at least December and will probably continue to move forward by the end of spring or early summer 2022 until the end of the program.

The minutes pointed out that some FOMC members want a faster pace to give the Fed room to raise interest rates faster.

“Some participants may reduce their net worth purchases by more than $ 15 billion each month to better position the Commission for adjusting the federal funds rate target range, especially in the light of inflation. He suggested that it could be justified. Pressure. “

This is important because inflation has been even hotter since the November meeting. In previous cycles, the Fed raised interest rates to cool the economy, but authorities say they are willing to allow inflation to rise above normal to improve the employment situation.

But the market expects a more aggressive federal government.

Traders on contracts betting on the future of short-term interest rates have shown that the Fed will triple the benchmark interest rate in 2022 at 25 basis point intervals, but the current official forecast is that there will be only one rate hike next year. However, these markets are volatile and can change rapidly in response to the signals the Fed sends.

FOMC members worried at the meeting that continued high inflation readings could affect public perceptions and that the Fed’s 2% long-term target “expectations are becoming less firmly fixed.” Was announced.

If inflation stays high, the Fed is ready to raise interest rates, minutes show

Source link If inflation stays high, the Fed is ready to raise interest rates, minutes show

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