USA: Fed officials divided on inflation risks

Many members of the Monetary Committee have judged “that high inflation could prove to be more persistent” than expected, according to the minutes of their last meeting.

The members of the monetary committee of the American central bank (Fed) were divided, at their last meeting, on the risks associated with inflation, and, consequently, on the measures to be taken, according to the minutes released Wednesday.

Fed officials, on the whole, see the high level of inflation “as largely a reflection of factors that may be transitory,” notes the minutes of their November 2-3 meeting.

But, while some believe “that the most significant price increases may have already taken place”, on the other hand, “many participants” felt “that high inflation could prove to be more persistent” than expected.

The Fed announced at this meeting that it was beginning to normalize its monetary policy, after supporting the economy during the crisis.

It began to reduce its asset purchases by $ 15 billion each month, bringing them down from $ 120 billion monthly to zero.

At this rate, the Fed would stop all purchases in mid-June 2022. It wants to have completed this step to consider the following: raising key rates, located in a range of 0 to 0.25%.

“Various participants noted that the committee should be ready to adjust the pace of asset purchases and raise key rates earlier than expected (…) if inflation” were to remain too high, details the document.

Monetary committee officials notably insisted on “the importance of maintaining flexibility to adjust the policy stance as appropriate”, depending on the development of the labor market and inflation.

Since that meeting, however, concerns about rising prices have grown, and several officials have hinted that the pace could be picked up. The majority of investors are even betting on a rate hike from May 2022, according to statistics from the CME Exchange.

Inflation is, in the United States, at its highest for more than 30 years, more tenacious than expected, and some now fear that it will take time to moderate, which could slow down the economic recovery.

Faced with high inflation, the Fed, which must ensure price stability and full employment, usually raises its interest rates, which increases the cost of credit and lowers demand, and therefore prices. But, in the unprecedented context of the pandemic, it could also slow down the recovery of the job market.

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