December 6, 2021

Hardwood Paroxysm

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The Federal Reserve cut bond purchases by 15 billion per month. “High but transient inflation”

This is a phenomenon that cannot be addressed by monetary policy: “Our instruments cannot reduce supply constraints. We still believe that our dynamic economy will adapt to the imbalances.” As a result, inflation will fall “to levels much closer to our long-term goal,” Powell added, possibly between the second and third quarters of 2022. However, risks to the economic outlook remain, and as the president has made clear, monetary policy is being pursued. Activate it now through the “risk management” approach.

Interest rates unchanged

Thus, fixed interest rates between zero and 0.25% were not discussed during the November meeting. Powell specified that “the decision to begin tapering does not imply any direct indications of interest rate policy,” which would still be subject to a tougher “test” than buying securities.

In fact, the Fed continues to repeat – obviously looking “transparently” for recent rate increases – that it will keep interest rates at the current level until labor market conditions reach a level consistent with “maximum employment” (in terms of employment and participation), As assessed by central bankers, inflation will not decisively point above 2 percent.

weak job market

For now, the Fed continues to see a weak labor market (and Powell once again emphasized inequality between different racial groups). Five million workers are still missing, and between August and September, new jobs slowed dramatically. However, the Fed believes that the situation may return to normal in the second half of 2022, when prices will also begin to decline. Only then will it be possible to consider raising interest rates.

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But if the Fed “sees signs that the trajectory of inflation or long-term inflation expectations is moving significantly and continually beyond our targets, we will use our tools to maintain price stability. If a reaction becomes necessary we will not hesitate,” Powell, who then cautioned, said.