The Federal Reserve seems to be on a hawkish track, but is its rhetoric anything more than that? It has been an extremely volatile month for the economy and markets. The Fed will have to make sure it does not put too much of a strain on the market with aggressive monetary policy.
The “next fed meeting” is a term used to describe the next meeting of Federal Reserve Board members. The term is typically associated with hawkish Fed talk and dovish action.
On the trading floor of the New York Stock Exchange in New York City, Federal Reserve Chairman Jerome Powell makes comments on a screen.
The Federal Reserve has dropped the term “transitory” and openly acknowledges that inflation is high, but it isn’t in a hurry to address it. That was the message from the Federal Open Market Committee (FOMC) and Chairman Jerome Powell on Wednesday, whose actions indicated that inflation is indeed temporary, even if it is currently politically unpalatable to say so.
In terms of rhetoric, the FOMC statement deviated significantly from its previous formulation, dropping the notion that it would strive for inflation to go far beyond its 2% objective. Mr. Powell waxed ecstatic about the “rapidly” strengthening job market and economy, calling it “very robust,” “extremely strong consumer demand,” and “very good earnings.” He was mugged by economic reality, at least in that restricted sense.
Mr. Powell and the Fed, it goes without saying, grossly miscalculated both inflation and labor market strength this year. The chairman made it seem as though the inflation epiphany came to him in November, just around the time of the previous FOMC meeting, when the Fed decided to keep its monetary accommodation at a very sluggish pace. He saw the light when a bolt of data hit him. We’re guessing this is the Fed’s closest approach to acknowledging a mistake.
When it presented its new policy framework to allow greater inflation in August 2020, Mr. Powell made the stunning revelation during his post-FOMC news conference that “the inflation that we received was not at all the inflation that we were hoping for.”
Later, he clarified that the sort of inflation the Fed was seeking for was wage inflation. The epidemic generated a supply-demand imbalance, which led in inflation. Covid-19 certainly covers a wide range of policy blunders. However, we doubt that this justification would reassure Americans who define inflation as an increase in prices, regardless of the source.
But have no fear: according to Mr. Powell, the Fed has everything under control, and it forecasts this. The median estimate for personal-consumption expenditure inflation, the Fed’s preferred metric, increased to 5.3 percent this year, according to Fed officials. Given reality, how could it not be? However, they predict that PCE inflation will decline to 2.6 percent in 2022 and then continue to shrink.
The FOMC’s modest policy adjustments are based on this reassuring outlook. The Fed will accelerate its bond-buying program, which will end in March rather than June. This isn’t monetary tightening; rather, it’s a more rapid decline in unprecedented monetary ease. Even if inflation is nearing 7%, the central bank’s balance sheet will continue to expand for another three months. Amazing.
Mr. Powell made it plain that interest rate hikes won’t start until the bond taper concludes, and even then, just three quarter-point hikes are expected in 2022. This indicates that after accounting for inflation, real interest rates will stay negative for the remainder of the year. This isn’t a hawkish policy, and the stock market’s positive response implies that investors believe rising rates pose less of a danger to asset values.
Mr. Powell was quick to point out that there were no dissenters on the FOMC. That’s surprising considering the gap between the Fed’s expectations and inflation reality this year, but the Powell Fed has always been known for its uniformity.
Mr. Powell and Fed governor Lael Brainard both face Senate confirmation hearings, Mr. Powell for another four years as chairman and Ms. Brainard for another four years as vice chair.
Mr. Powell’s goal seems to be to speak harsher about inflation but doing nothing about it in the near future in order to get past his confirmation hearing. Senators can determine if they share the Fed chairman’s confidence that he has everything under control.
Crime rates are growing as District Attorneys reduce prosecution and concentrate on areas such as bond reduction. Perhaps people are beginning to regret their decision to vote for progressives. Image credit: AFP/Jonathan Eisele via Getty Images
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The print version of the December 16, 2021, was published.
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