Powell will accelerate the withdrawal of stimuli because inflation is no longer transitory

The president of the Federal Reserve, Jerome Powell, gave in to the insistent pressure of prices in the United States and assured the Senate Banking Committee on Tuesday that it is time to remove the transitory nature when referring to inflation. A change of script that was accompanied by a veiled possibility that the US central bank accelerates the withdrawal of its stimuli at the next meeting scheduled for December 14 and 15.

“We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation,” Powell said of his earlier use of the adjective “transitory” when referring to the biggest price spike in more than three decades on this side of the Atlantic. “I believe that it is a good time to withdraw this word and try to explain more clearly what we mean, “he added.

According to his explanations, at the moment, the US economy is very strong and inflationary pressures are greater, so, in his opinion, it would be appropriate to consider ending the reduction of the Fed’s asset purchases. earlier than initially planned. In this sense, the guardian who ensures full employment and keep inflation stable at an average of 2% announced that he hopes that this discussion will be part of the topics to be discussed in the Federal Open Markets Committee (FOMC, for its acronym). in English), the body in charge of dictating US monetary policy.

Equities in the US did not take long to react to these statements, delving into the falls already implemented since the beginning of trading. Parallel, the yields of the American public debt began a new escalation. Powell’s comments raised concerns from investors, already concerned about the impact that the Omicron variant of Covid-19 may have.

Precisely, both the president of the Fed and the Secretary of the Treasury, Janet Yellen, who also appeared before this committee of the Upper House, outlined the recent increase in Covid-19 infections and the appearance of the Omicron variant as risks for both the labor market and economic activity. Powell also said that this situation would further increase uncertainty when it comes to inflation.

The FOMC officially announced at the beginning of November the beginning of the reduction of its debt purchase program, which since last March amounted to $ 120 billion a month. The cut on these purchases, also known as taperingIt started at a rate of $ 15 billion a month ($ 10 billion in Treasuries and $ 5 billion in mortgage-backed assets).

The possibility of accelerating the reduction of these purchases in the last retinue of the year coincides with the forecasts made by multiple investment desks. From Goldman Sachs or Deutsche Bank they anticipate that the Fed will double the rate of its cut to $ 30 billion (20,000 million in Treasury bonds and 10,000 million in mortgage assets) with the aim of ending the tapering in the first quarter of 2022. Thereafter, both banks as well as the FedWatch indicator of the CME they glimpse 3 interest rate hikes of 25 basis points each, one in June another in September and a last one in December.