Tapering & Rate Hikes & Inflation, Oh My
The Federal Reserve has announced a quicker taper then originally announced just a few weeks ago, according to the latest Federal Open Market Committee statement…(FOMC)
- Looking at inflation data and the strong labor market, the committee has “decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities.”
- NOTE: The Fed is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.
The Federal reserved also announced their predictions for the next few years…(FOMC)
- The FOMC now believes there could be three quarter-percentage-point interest rate hikes by the end of 2022.
- In September, only half the committee thought there would be one rate hike in 2022.
Finally, on inflation, the Fed has definitely evolved on this issue.
- The FOMC noted in their statement that that inflation has been persistent, “…inflation having exceeded 2 percent for some time…” and the word “transitory” was nowhere to be found.
- Powell at the presser yesterday: “The risk of higher inflation becoming entrenched has certainly increased. I don’t think it’s high at this moment, but I think it’s increased.”
It’s quite obvious the Fed is taking inflation more seriously, but it is also clear they still believe supply issues are a big part of it. There is still hesitancy about tamping down demand out of concern that doing so before an increase in supply (assuming the supply chains get fixed) could be too deflationary and detrimental to the economy. However, if inflation continues to increase they may not have a choice.
