Daily Management Review

Fed notes growing discomfort with high US inflation


US Federal Reserve chiefs signaled growing discomfort with the high inflation rate at the December meeting of the Federal Open Market Committee, where a shift to an earlier date for moving to higher interest rates was also discussed.

Most of the meeting participants, whose forecasts were published after the conclusion of the meeting on 14-15 December, expect at least three interest rate hikes of 0.25 percentage points this year. In September about half of them thought that the move to higher rates could wait until 2023.

Minutes of the Fed meeting published on Wednesday indicate growing concern that continued high inflation could push the central bank into more aggressive measures, especially if companies and consumers expect rapid price increases to continue.

For several months, Fed policymakers were of the opinion that the higher inflationary pressures seen in 2021 were the result of supply tightness and would subside on their own. However, before the December meeting Fed Chairman Jerome Powell signaled that he was now less certain about this forecast and his view was shared by the majority of the meeting participants.

One clear sign of concern is that meeting participants approved of plans to accelerate the unwinding of asset purchases. The Fed wants to end its bond-buying programme designed to stimulate economic growth before it moves to raise short-term rates to control inflation.

An earlier end to this programme (in March instead of June) would give Fed policymakers the opportunity to start raising near-zero interest rates as early as mid-March. The next Fed meeting will take place on 25-26 January.

source: dowjones.com