In seven months, the Fed may stop the stimulus. And reiterates that inflation is transitional – monetary policy



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Members of the Federal Open Market Committee (FOMC) of the Fed drew attention at a meeting of the US Federal Reserve on monetary policy, held on September 21 and 22, to the possibility of a gradual removal of incentives for the economy- so-called “narrowing”, which involves debt redemption- starting in mid-November or mid-December. The idea is to complete the program by the middle of next year.

The current incentive program involves the acquisition of assets equivalent to $ 120 billion a month. These amounts are broken down each month into $ 80 billion in Treasury bonds and $ 40 billion in mortgage-backed securities.

According to the minutes of the last meeting, FOMC members generally agreed with the idea that they should start cutting support to the economy in the event of an emergency pandemic, with this “reduction” starting in mid-November or mid-December, even if the covid delta -19 continues to create obstacles. “

Fed members stressed that if at the next meeting of monetary policy, which will be held on November 2 and 3, a decision was made to cancel the stimulus, the process may begin in mid-November or mid-December.

In addition, “participants [na reunião] they felt that, given that economic recovery was still under preparation, it would be appropriate to complete the “gradual” process by the middle of next year, “the protocol said Wednesday.

Representatives of the US Federal Reserve also discussed the possible quantitative trajectory of the “reduction”, pointing to a monthly reduction in the purchase of Treasury bonds by $ 10 billion and $ 5 billion in the case of mortgage securities.

Inflation: continues to rise but transient

As for inflation, which is growing at an accelerated pace – in September it was at its highest level in 13 years, at 5.4% – some Fed officials said that disruptions in supply chains and production they could keep price pressures higher than expected . However, they repeated its temporary nature.

Last month, Fed officials estimated that next year inflationary pressures would ease and inflation would fall to almost 2% set by the central bank.

As for federal fund rates, 9 of the 18 FOMC members at the September meeting predicted that key interest rates could rise at least once in 2022 (compared to only seven who saw such an opportunity at the June meeting).

In September, the FOMC maintained interest rates between 0% and 0.25%, stating that they would remain at this level until the labor market reaches full employment and inflation is no longer controlled (maybe “some time” to be above 2%) .

At this latest Fed meeting, the “point plot,” a map showing how each central bank representative assesses changes in key interest rates, thus showed that half of the Federal Reserve now expects interest rates to rise next year.

In addition, all but one member expects at least one key rate increase by the end of 2023, and 13 of them expect two increases during 2022.



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