Fed considers faster reduction in stimulus and anticipated hike in interest rates

Several Fed monetary policy makers (the Federal Reserve, the US central bank) said they would be open to speeding up the completion of their bond-buying program if high inflation continued and to act more quickly to raise interest rates , showed the minutes of the institution’s last monetary policy meeting.

“Several participants noted that the Committee should be prepared to adjust the pace of asset purchases and increase the target range for the interest rate sooner than participants currently expect if inflation continues to run above levels consistent with the targets Committee,” the Fed said in the minutes of the November 2-3 meeting.

Fed members unanimously decided at that meeting to begin scaling back the central bank’s $120 billion in monthly purchases of Treasury and mortgage-backed securities, a program introduced in early 2020 to help sustain the economy during the pandemic. of Covid-19.

At the original pace, asset purchases would be completely reduced until next June. However, there are growing calls from some monetary policy makers to speed up that timeline, given the high inflation readings and stronger job creation since the meeting. They argue that this would give the Fed more flexibility to raise its benchmark interest rate from its current level, close to zero, early next year, if necessary.

All signs are that accelerating the reduction in bond purchases is now something to be debated at the next Fed meeting on December 14-15.

Economic data released on Wednesday showed that the number of Americans who filed new jobless claims fell last week to the lowest level since 1969, while the Fed’s preferential measure for inflation continued in October to run at more than twice as high as the central bank’s flexible average target of 2%.

San Francisco Fed Chair Mary Daly, one of the more cautious Fed officials, also said on Wednesday she was open to a faster reduction in the bond-buying program if employment and inflation data remained stable ​​and that it would see the Fed’s monetary policy committee (Fomc) raising interest rates once or twice in the next year.

Inflation in October rose at its fastest annual pace in 31 years, which tested the Fed’s working assumption for most of the year that the pandemic-induced inflationary spurt would be temporary, as supply bottlenecks eased and the demand shifted from goods to services.

Some other officials recently said they are also more comfortable now with an interest rate hike earlier next year than previously forecast, noting that the current pace of job openings would put the Fed on a path to stay. close to or meet its goal of full employment by mid-2022.