Washington (AP) — Federal Reserve Chair Jerome Powell was convinced that he could afford to take the first step this month and regain Fed emergency assistance to the economy.
But just a week later, the government reported that consumer prices have risen the most in 30 years in the last 12 months. The surge in inflation has put pressure on consumers, threatened the Biden administration and increased pressure to act on Powell.
Some economists (and some Fed officials) want the Fed to act faster to curb ultra-low interest rates. Other policy makers favor a more patient approach to interest rates. As a result, divisions occur within the Fed, Powell is likely to have to be resolved, and can have widespread economic consequences.
President Joe Biden offers Powell a second four-year term as chairman of the Federal Reserve Board, or instead nominates a major alternative, Lael Brainard, who is a member of the Federal Reserve Board. It’s the same as trying to announce what to do. Powell’s term as chairman will expire in February.
The question of whether the Fed should act more quickly to withdraw the huge amount of aid the Fed has injected into the economy to fight the pandemic recession has not slowed the economy, which still lacks 4 million jobs. Pre-pandemic levels highlight the very delicate challenges before the Fed trying to curb inflation.
The main cause of disagreements at the next Central Bank meeting in December could revolve around accelerating or tapering monthly bond purchase cuts. The Federal Reserve has been with the Treasury since last summer until Powell announced that he would taper these purchases to lower long-term interest rates and encourage more borrowing and spending until November 3. I bought $ 120 billion a month in mortgage bonds.
According to Powell, purchases in November and December will be reduced by $ 15 billion a month and will be fully closed by June. But the Fed didn’t promise to stick to that pace. It withheld the possibility of accelerating the pullback. By doing so, the Fed will have the option to raise major short-term interest rates in the first half of 2022. Rate hikes will lead to higher consumer borrowing costs such as mortgages and credit cards.
Harvard economist and former adviser to President Barack Obama said in a conversation with reporters this week that unemployment fell faster than expected, reaching a relatively low 4.6%, but consumers. Inflation reached its highest level in 1931, he said. At 6.2% a year. Higher inflation lowers the effective cost of loans, and the Fed’s policies will support growth more than in the early days of the pandemic, and potentially more inflation.
Farman suggested that all of these factors justify a quicker tightening of the Fed’s low interest rate policy. He said the Fed had taper off by March, plans to raise rates early next year, and could raise it three times in 2022 unless inflation recedes rapidly.
“Our economic problems aren’t enough shots with weapons, not enough throughput at the port. Buying assets and keeping interest rates low doesn’t solve these problems.”
Some federal policy makers are moving in the same direction. They include James Bullard, President of the Federal Reserve Bank of St. Louis.
“It makes sense to move a little more hawkish here and try to manage inflation risk,” Bullard said in an interview with Bloomberg Television this week. (“Hawkish” refers to federal policy makers who prioritize raising interest rates to combat inflation, while “dove” usually promotes more growth and employment. I prefer to keep interest rates low.)
Many economists are raising their schedule for the Fed’s first rate hike. Goldman Sachs expects to raise rates twice next year, almost a year ahead of previous forecasts.
However, some federal officials want to take a more patient approach, continue to taper until June, and then take the time to assess whether rate hikes are needed.
Mary Daly, head of the Federal Reserve Bank of San Francisco, said this week she understands the difficulties posed by high inflation, especially for people living from salary to salary. In a comment to the business audience, she said she saw a Walgreens woman recently taking things out of her shopping cart.
Still, Daily thinks the Fed should continue to taper at its current pace until June, and given a clear sense of whether inflation will weaken, assuming the pandemic is steadily loosening its grip on the economy. He said he would wait to get it.
“If current high inflation and labor shortages turn out to be temporary in relation to COVID, rising interest rates will hinder growth, slow labor market recovery and leave millions of workers unattended. I’ll put it aside if necessary, “Daily warned.
Ferman advocates a more hawkish approach, as inflation could rise in the coming months due to factors unrelated to the pandemic, such as rising rents and stable wages. Second, companies may raise prices to offset the cost of higher wages.
More dovish economists argue that the main cause of inflation is not the general overheating of the economy. This is usually why the Fed tightens credit. The main reason for this is that the pandemic has increased people’s time at home and restricted spending on services such as planes, eating out and attendance, so consumers are spending a lot of money on furniture, appliances, cars and other commodities. They say it’s because they started spending. Movies and concerts.
Wells Fargo economists say spending on commodities has skyrocketed by 15% since the pandemic. After the last recession, eight years after the recession began, commodity spending did not increase significantly. Its strong demand is to clog ports and overwhelm the freight trains and trucks that carry them.
Wells Fargo economist Michael Puriese said consumers are more likely to return some of their spending to services as the pandemic weakens, potentially slowing inflation.
Powell suggested he was thinking about this very issue when he said in a press conference after the Fed’s recent meeting that consumers are likely to return some spending to services soon.
The debate is intensifying as Biden approaches the decision to reappoint Powell as chairman of the Federal Reserve Board. The president told reporters on Tuesday that he would announce his decision soon this week.
“With the grace of God and the goodwill of our neighbors, you will hear it in about four days,” he said.
Fed pressure on Powell is increasing as inflation worsens | WGN Radio 720
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