“Patient” or “aggressive”? Federal policymakers divided in response to inflation


File photo: Jerome Powell, Federal Reserve Board of Governors, attends a House Financial Services Commission hearing on September 30, 2021 in Capitol Hill, Washington, U.S. Reuters via Aldrago / Pool

October 13, 2021

Anne Safir

(Reuters) – U.S. central bankers generally agree that support for the economy may start to wane quickly, but the extent of the threat posed by high inflation and, more importantly, what is about- he. Opinions are divided on the need to do so.

When the Federal Reserve releases the September 21-22 policy meeting minutes on Wednesday, there should be signs of the intensity of the debate. fed-likely-open-bond-buying-taper-door-hedge-outlook-2021-09-22 Yet the era of crisis politics has been numbered.

Most policymakers say $ 120 billion, because this year’s economy has been the fastest growing in decades, inflation has far exceeded the federal comfort zone, and the labor market has recovered significantly from the devastation. of the coronavirus pandemic. We think it’s wise to start cutting the dollar With monthly asset purchases, central banks are accelerating the economic recovery.

Federal Reserve Chairman Jerome Powell said last month that as long as the job market data was “decent,” the Federal Reserve’s cut in purchases of government bonds and bank-backed securities. Mortgage claims had started next month, to mid-next month. He said he expected it to be finished by here. Year.

After a government report on Friday showing US employers created 194,000 jobs last month https://www.reuters.com/world/us/us-job-growth-slows-sharply-september-unemployment-rate- falls-48-2021- Well below the expectations of many economists in 10-08, Fed Vice Chairman Richard Clarida did not specifically signal in November Tuesday the start of the reduction in asset purchases. , said the employment directive was “almost satisfied”.

“Https://www.reuters.com/world/us/feds-clarida-employment-test-begin-bond-taper-all-met-2021-10-12 will decline,” he said. Reading the Moon Policy Conference will probably consolidate this point of view. The Fed will release the meeting minutes at 2:00 p.m. Eastern Standard Time (6:00 p.m. Greenwich Mean Time).

Most analysts expect the future decline to be steady and “boring,” as Philadelphia Fed Chairman Patrick Harper puts it.

Minutes or other tips where policymakers plan to speed up or slow down depending on the pace of economic recovery. After the financial crisis and recession of 2007-2009, the economy will regain good health and surprise the market.

Maybe the minutes add a new color to the inflation outlook for policymakers, especially if they feel they must ultimately sacrifice the goal of achieving full employment to keep inflation from skyrocketing.

“Most central bank executives don’t think they are facing this compromise right now,” Karen Dynan, professor of economics at Harvard University, said last week. “Next year … if inflation is disagreeably high, this choice is appropriate.”

Economic forecasts released with the Fed’s policy statement last month show that the central bank is forecasting inflation this year at 4.2%, more than double the flexible target of 2%. The US government will release new inflation data early Wednesday.

“Unpleasant situation”

Powell and Clarida played down this possibility. According to Clarida, Fed policymakers are almost equally divided on whether rate hikes should start next year or 2023, but their forecasts are. It is “perfectly in line” with the Fed’s policy framework, which aims at both maximum employment and stable inflation. Tuesday.

However, public comments from other policymakers, including the Fed’s two oldest Fed Governors, suggest that there is heated debate on the surface.

Federal Reserve Bank of St. Louis Governor James Bullard is concerned that the current high inflation may persist and become part of the economy and demand a more “aggressive” response from the central bank. He fears inflation may stay high or rise, and will end the reduction in asset purchases early next year so the Fed can raise interest rates in the spring or summer if necessary. I want

Chicago Fed Governor Charles Evans expects inflation to come down naturally as businesses overcome supply bottlenecks that are currently putting upward pressure on prices. He advises his colleagues to be “patient” and the percentage of numbers should not start to increase until the end of 2023.

Clarida said on Tuesday that there were few signs that rising wages were leading to an unhealthy rise in inflation, but the “big unknown” is how long the supply bottlenecks will continue to grow. inflate prices. .. He did not provide the current forecast for rate hikes.

How the differing views of policymakers are shaping the actual timing of the Fed’s rate hikes is not just for those who follow the market and invest, but also for Americans broadly, especially before the pandemic, but today. ‘hui, they are hiring. Important to millions of people who haven’t been.

If Fed policymakers believe they need to raise interest rates to stop inflation before the economy reaches full employment, it may shorten the recovery.

If we choose to delay rate hikes to increase the chances of a recovery in the labor market, but in the meantime we misjudge the sustainability of inflation, we need to increase rate hikes to compensate. lower inflation.

Tim Duy, an economics professor at the University of Oregon, becomes “uncomfortable” over uncertainty over who will lead the Fed when Powell’s presidency ends in February 2022. He does not has yet to say whether he would re-appoint Powell or pick someone else to run the central bank.

(Report by Ann Saphir; edited by Dan Burns and Paul Simao)

“Patient” or “aggressive”? Federal policymakers divided in response to inflation

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