As US inflation picks up, it is more likely that the US central bank, the Federal Reserve System (FRS), could accelerate monetary tightening, such as raising its key interest rate earlier than initially expected. According to the November 24 Federal Open Market Committee (FOMC) meeting minutes released by the Federal Reserve on the 24th, many participants said: “If inflation continues to exceed the target, we should adjust the rate of asset purchases faster than currently expected. and prepare for an increase in the base rate. ” He hinted at such a possibility. The protocol emphasizes that “maintaining flexibility should be a principle when making appropriate policy adjustments (in relation to a gradual transition),” the protocol says.
Some participants noted that “a decrease in asset purchases of more than $15 billion per month might be justified, the Committee will have more room to adjust its target rate target range, especially in light of inflationary pressures.” Earlier, after the FOMC meeting, which took place on the 2nd and 3rd of this month, the Fed announced the start of a reduction in asset purchases, saying that the scale of the reduction could be adjusted accordingly. Judging by the minutes released today, it appears that the Fed is planning to accelerate the rate of decline in inflation if inflation persists. In particular, the minutes showed that there was a discussion in the FOMC that the rate hike should be accelerated if inflation continues. This contradicted what Fed Chairman Jerome Powell said at a press conference at the time that “the decision to start rate cuts is not a direct signal for a rate hike. “Members of FOMC stressed the need for a “patient” approach to upcoming economic data, however said they “will not hesitate to take appropriate action to counter inflationary pressures that could harm long-term price stability and employment targets.”
Since the US CPI announced after the FOMC meeting in November more than doubled the Fed’s 2% target, the FOMC’s regular meeting on the 14-15th of next month will further discuss the rate of decline and timing of the next annual rate hike. Seems The October Personal Consumption Expenditure (PCE) Price Index, released by the US Department of Commerce on the same day, rose 5.0% over the same month last year, recording the largest increase in 31 years since November 1990. In addition, it significantly exceeded the growth rate of the previous month (4.4%), which indicates an exacerbation of the inflation trend. Excluding energy and food, the core PPI price index rose 4.1% y-o-y, also exceeding the growth rate in September (3.6%). The index, the Fed’s favorite inflation indicator, also rose the most in nearly 31 years.
Employment, another component of the Fed’s monetary policy objective, is also improving. According to the US Department of Labor, last week (November 14-20) the number of new jobless claims was 199,000, down 71,000 from the previous week. It was the lowest level in 52 years since the second week of November 1969, even when President Joe Biden issued a welcoming statement calling it “historic economic progress.” The outlook for sustained inflation is now expected to determine the Fed’s course of action. In the November minutes, the Fed predicted that inflation could decline over the next year. “While participants predict that significant inflationary pressures will last longer than previously estimated, they generally predicted that inflation could be significantly lower in 2022 as the supply-demand imbalance eases,” the minutes said.