With Fed Powell’s re-nomination, attention turns to reducing the speed of debt purchases Reuters

© Reuters. File picture: Federal Reserve Chairman Jerome Powell testifies at the hearing of the “Semi-annual Monetary Policy Report to Congress” at the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, U.S., July 15, 2021. REUTERS/Kevin Lam

Author: Lindsay (NYSE:) Dunsmuir

(Reuters)-As Fed Chairman Jerome Powell looks forward to taking the helm of the world’s most powerful central bank for another four years, attention is turning to him and his policymakers who are increasingly likely to make the U.S. economy faster Get rid of emergency support. Facing high inflation and strong employment growth.

All signs indicate that this method has been firmly on the table. Economic data earlier on Wednesday showed that the number of new Americans applying for unemployment benefits https://www.reuters.com/markets/us/us- weekly-jobless-claims -drop-51-year-low-q3-growth-revised-slightly-up-2021-11-24 fell to the lowest level since 1969 last week, one of the most cautious policymakers of the U.S. central bank said In the face of “staggering” inflation, she eliminated stimulus measures faster.

When Powell was re-nominated on Monday https://www.reuters.com/markets/us/powell-tapped-second-term-fed-chair-2021-11-22 to be re-elected as Fed chairman, US President Joe Biden made it clear that the government and The central bank will take measures to address the soaring cost of daily necessities, including food, gasoline and rent. Inflation in October rose at the fastest annual rate in 31 years, testing the Fed’s working hypothesis that the outbreak caused by the COVID-19 pandemic will be temporary.

The debate among Fed policymakers on how quickly the monthly asset purchase plan should be cancelled may begin when the minutes of the latest policy meeting are released on Wednesday.

Federal Reserve officials agreed at the November 2nd to 3rd meeting to start reducing the purchase of US$120 billion in U.S. Treasury bonds and mortgage-backed securities—a plan launched by the Federal Reserve in 2020 to help the economy get through. Epidemics-the timetable will see them completely narrowed down in June next year.

But they have left the possibility that the slowdown in asset purchases may change, and now they are focusing on factors that require a faster withdrawal.

“The minutes of the meeting should pay close attention to how high the threshold for adjustments and reductions is,” said senior economist Sam Brad. FuGuo bank (New York Stock Exchange:).

Since the November meeting, economic data has shown that employment growth has accelerated again and retail sales have surged, but the most striking thing is that inflation has not subsided as expected by Powell and the rest of the Fed. The Labor Department’s consumer price inflation benchmark surged to an annual rate of 6.2% last month.

Data from the Department of Commerce, expected to be released late Wednesday morning, will show that another indicator of price increases — favored by the Federal Reserve — continues to operate at twice the central bank’s 2% flexible average target.

Investors are now betting that the Fed will have to raise interest rates three times next year, and some markets reflect that higher borrowing costs will be initiated as early as May.

Anxiety of policymakers

The content of the policy meeting on Wednesday may also provide more detailed information on the degree of dissatisfaction of policymakers with inflation. Most of them insisted in the first half of this year that as supply chain wrinkles are resolved, soaring prices will be A short period of time with the reopening of the economy.

“It’s easy to get fired in May, but as time goes on, they take it more and more seriously. Given the improvement in the labor market, they may feel more comfortable…full employment is closer to the horizon,” Michael Feroli (Michael Feroli) said, JPMorgan Chase (NYSE:) chief US economist.

Fed Vice Chairman Richard Clarida will be replaced by current Fed Board member Lael Brainard when his term expires early next year. He said last week that he would discuss speeding up the reduction of bond purchases. Therefore, at the policy meeting on December 14-15, how early the central bank’s benchmark overnight interest rate will be raised from the current level of close to zero will be the agenda.

This is the latest sign that policymakers are now deeply adapting to the path of inflationary pressures. Inflationary pressures have intensified and expanded, which makes Powell feel a headache. Powell redesigned the Fed’s policy framework last year, putting its goal of maximizing employment first.

If his re-election is confirmed by the U.S. Senate, Powell will begin his second term of Fed chairman in February, although he pointed out that although he stood with Biden at the White House on Monday, he still expects inflation to be before the end of next year. Dissipated, the Fed is very concerned about price pressures.

St. Louis Fed Chairman James Brad and Fed Governor Christopher Waller last week called on the Fed to withdraw its bond purchase support more quickly before March and April, respectively.

Some other more patient policymakers said that they are now more satisfied with interest rate hikes early next year than previously expected, and pointed out that the current rate of employment growth will put the Fed on a track to approach or reach its mid-term employment maximization goal. In 2022.

Even San Francisco Fed President Mary Daly has been opposed to the hasty cancellation of the easing policy until this week. She told Yahoo Finance on Wednesday that she will check inflation and employment data before the next meeting, “If things continue to follow they have been I will fully support speeding up the pace of reduction.” Daly added that although her own expectation is still to raise interest rates once in 2022, “if interest rates are raised once or twice in the second half of next year, I will not feel at all. surprise.”

Inflation is not expected to peak until the first quarter of next year and then begin to fade, which means that the inflation debate will not be easily resolved.

“At the same time, what the Fed must worry about is: Will this affect wages and inflation expectations? If so, then they really need to act faster,” Casey Bosyan, chief U.S. financial economist at the Oxford Economics Institute Sic said.

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