Fed officials point to March rate hikes as inflation soars By Reuters


© Reuters. Facade of Federal Reserve Headquarters in Washington, USA 03/19/2019 REUTERS/Leah Millis/File Photo

By Lindsay Dunsmuir and Ann Saphir

(Reuters) – The Fed head on Thursday became the latest senior U.S. central bank official to signal that the institution is preparing to start raising rates. in March to combat what has eroded the value of recent workers’ wage gains and placed Fed members in the crosshairs of the political class.

The Fed “projected several rate hikes throughout the year,” Brainard told the Senate Banking Committee, which is considering his nomination by the US president, as Fed vice chair.

“We will be in a position to do that … as soon as our purchases are completed,” she said, referring to a separate Fed asset purchase program scheduled to expire next month, which opens the door to a possible increase. interest rates at the Fed’s March 15-16 monetary policy meeting.

The central bank in December announced plans to buy its last tranche of US government bonds in February, earlier than it had projected just a month earlier.

With annual inflation hitting 7% in December, the highest in nearly 40 years, Fed policymakers are eager to do more and sooner, with interest rate hikes expected in the coming months and plans to reduce the stock of assets. of nearly $9 trillion from the central bank quickly taking shape.

“We are clearly in a situation where the monetary policy stance is wrong” against inflation, Chicago Fed Chairman said at an event organized by the Milwaukee Business Journal on Thursday.

He called policymakers’ recent projection of three 0.25 percentage point increases in 2022 “a good start”, but added that “it could be four if the data doesn’t improve fast enough”.

It was common thinking this week, as policymakers appeared to firm up plans for a rise in borrowing costs in March and put the possibility of a fourth rate hike in 2022 at stake.

This week is the last week before Fed officials enter a kind of quiet period — that is, no publicized comments — ahead of their January 25-26 monetary policy meeting, when they can lay more groundwork for an interest rate hike in March.

The interest rate is close to zero, a level at which it has been maintained since the beginning of the crisis triggered by the coronavirus pandemic.

“My prediction is that we would have a 25 basis point increase in March as long as there is no change in the data,” Philadelphia Fed President said at a virtual event hosted by the Philadelphia Business Journal on Thursday.

“I definitely see rate hikes coming, even as early as March,” San Francisco Fed Chairwoman said Wednesday.

Atlanta Fed Chair , St. Louis Fed Chair , and Cleveland Fed Chair , also fanned interest rate hikes in March in comments on Wednesday.

BALANCE SHEET REDUCTION

In December, most Fed policymakers considered they would need to raise interest rates at least three times this year, but in recent weeks — with data showing inflation has remained well above the 2% target and labor market close to full employment–authorities focused on starting this process in March.

With an interest rate hike in March now firmly under discussion, several officials — including Brainard on Thursday — have also signaled a desire to begin trimming the Fed’s $8 trillion balance sheet this year. This would also remove monetary policy accommodation and ease downward pressure on long-term borrowing costs.

Investors currently see an 86% probability that the central bank will raise its one-day benchmark lending rate at its March 15-16 policy meeting, according to CME Group’s FedWatch tool, which further shows another three interest rate hikes this year.

Earlier this week, Fed Chair, also commented on a firm tightening of monetary policy in 2022. He argued that the strong economy does not “need or want” as much stimulus, despite the jump in Covid-19 cases due to the variant Omicron.

Philadelphia Fed’s Harker said on Thursday he sees the Fed’s balance sheet being reduced in late 2022 or early 2023 and that its final composition is still being debated.

Brainard, for his part, said the Fed will try to contain inflation “as quickly as possible, but consistently with a strong and sustained recovery.”

(By Lindsay Dunsmuir, Jonnelle Mars and Ann Saphir)

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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