The Fed attacks inflation



2021/12/18

The Fed attacks inflation

The U.S. central bank will cut bond purchases on the markets by 30 billion a month in December compared with 120 two months ago. And from January the decrease will rise to 60 billion a month. So in March will end the plan of return from monetary stimulus that had been decided in spring 2020. And from there on there will be room to increase the cost of money. Inflation is no longer considered transient.

The Federal Reserve goes on the attack of inflation, accelerating the end of stimulus to the economy to prepare to raise rates, which could be adjusted three times over the next year. It is the unanimous outcome of the two-day meeting that the US central bank summit concluded yesterday inash

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Already in November, the Fed had begun tapering, a $ 15 billion reduction in bond purchases to $ 120 billion a month, which it had done during the Covid crisis to encourage recovery. Now the reduction will become 30 billion per month, to conclude the entire operation in March. This will make it possible to act on the cost of money, which the Federal Reserve wants to raise to curb inflation. Rates are at zero, but the central bank's prediction is that they could be raised three times in 2022. The decision, according to the final statement, was taken "in the light of the trend in inflation and the further improvement in the labor market". Immediately afterwards President Poellell explained: "the economy is making rapid progress. But inflation has a real impact on people's lives and we will use all our tools to contain it".

The Fed's move was expected, because in recent days the same Poell The Fed remains convinced that next year it will slow down, when the supply chain is unlocked. Then the rapid growth in demand that has driven up prices could slow down, if the surge in infections generated by the Omicron and Delta variants pushes consumers back into the house, limiting expenses.

In the meantime, however, action must be taken, because many of these variables remain uncertain, while in November inflation rose to 6.8%, the highest level since 1982. At the same time unemployment fell to 4.2%, and therefore the need to keep prices under control became more urgent than generating jobs. Indeed, many Americans have chosen to cross their arms with the Great Resignation, some for fear of getting sick and some for generous state subsidies, plunging into despair many entrepreneurs who no longer know where to hire staff.

Biden observes this challenge with concern, because it is the success or failure of his presidency, ahead of the midterm elections in November 2022 but also the race for the White House in 2024. First of all, the townspeople blame him for inflation, when at the gas station they find gasoline prices skyrocketing, and this contributes to his popularity plummeting. Then all this also risks derailing congressional approval of the $ 1.75 trillion social infrastructure package, which is a central element of his agenda for a more inclusive economy, and winning the next election. In fact, Democratic Senator Manchin, the main obstacle to the passage of the initiative, argues that to curb it is precisely the surge in inflation, because the generous state investment could fuel it even more.

Michael Zippo
https://linkedin.com/in/michael-zippo-9136441b1
info@e-book.business





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