Several Fed officials open up to speed up cuts in bond purchases, interest rate hikes

Nov 24 (Reuters) – An increasing number of Federal Reserve politicians indicated they would be open to speeding up the elimination of their bond-buying program if high inflation persists, and move faster to raise interest rates, minutes of the US Federal Reserve’s most recent policy meeting showed.

The announcement, released on Wednesday, was the latest indication that fears of rising inflation at the Fed have now taken root, and many officials at the meeting on 2-3. November also suggested that increased price pressure could prove to be more persistent.

The sustainability and expansion of price pressure have surprised the White House and the central bank and caused both to react. U.S. President Joe Biden and Fed Chairman Jerome Powell stressed earlier this week that they would take steps to tackle the rising cost of daily commodities, including food, gasoline and rent.

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Although the rise in inflation in late spring and over the summer was portrayed as transient, concern in the Fed has increased as readings remain high into the fall.

“Several participants noted that the (policy-making) committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate faster than participants currently expected if inflation continued to run higher than levels in line with the committee’s objectives. . “, the Fed said in the minutes.

The Fed’s policy makers unanimously decided at last month’s meeting to start reducing the central bank’s $ 120 billion in monthly purchases of government bonds and mortgage-backed securities, a program introduced in early 2020 to help nurture the economy through the COVID-19 pandemic. A number were directly in favor of a faster phasing out of the bond buying program during these deliberations, the minutes showed.

The initial pace would cause asset purchases to fall all the way down in June next year. Since then, however, there have been growing calls from some policy makers to accelerate the timeline in light of continued high inflation measurements and stronger job growth, to give the Fed more flexibility to raise its benchmark day-to-day interest rate from its current vicinity. -zero level earlier next year if needed.

Investors’ reaction to the release of the minutes was largely subdued, with the S&P 500 index (.SPX) rising around 0.2% in the late afternoon. Yields on shorter-term government bonds, which were most sensitive to Fed policy expectations, remained stable at slightly higher levels, while the dollar remained close to its highest mark since July 2020 against a basket of major trading partners’ currencies.

“The Political Affairs Committee has clearly woken up to the realization that even if it does fall back somewhat, inflation is likely to remain above target for a longer period of time,” said Paul Ashworth, chief economist at Capital Economics.

‘WOULDN’T HAVE TO DOUBLE’

However, a number of other policy makers at the Fed’s meeting in November still called for a more patient approach and wanted more data in hand, although everyone agreed that the Fed “would not hesitate to take appropriate action to address inflationary pressures,” which poses a risk to its longevity.-run targets for price stability and employment. “

But with further robust economic data released over the past three weeks, all indications are that an acceleration of the reduction in bond purchases is now firmly on the table at the Fed’s next political meeting on 14-15. December.

Data released Wednesday showed that the number of Americans filing new unemployment benefits fell to their lowest level since 1969 last week, while the Fed’s preferred inflation target continued to run at more than double the central bank’s 2% flexible average target in October.

San Francisco Fed President Mary Daly, one of the central bank’s most cautious policy makers, also said Wednesday that she is open to a faster settlement of the bond buying program if job and inflation data remain stable and that she could see Fed policy. -specification of committees that raise rates once or twice next year.

Investors currently see a 53% probability that the Fed’s day-to-day lending rate will rise in May 2022, up from 45% on Tuesday, according to CME Group’s FedWatch program.

Inflation in October rose at the fastest annual pace in 31 years, testing the Fed’s working assumption for most of the year that the pandemic-induced outbreak would be temporary as supply bottlenecks eased and demand rotated from goods to services.

Some other policy makers have recently said they are also now more comfortable with an interest rate hike earlier next year than previously expected, noting that the current pace of job growth would put the Fed on track to be close to or at its maximum employment targets by mid-2022.

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Reporting by Lindsay Dunsmuir; Editing by Paul Simao

Our standards: Thomson Reuters Trust Principles.

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