Fed Signals Rate Hike as Early as March to Fight Persistent Inflation

After its first policy meeting in 2022, the US Federal Reserve said it was likely to raise interest rates in March, for the first time in more than three years, and confirmed plans to end its bond purchases launched during the coronavirus pandemic at the Fed. . a fight to control rising inflation.

The US Central Bank signaled that the political group is looking for a quarter-percent increase in its reference rates (this will be the first increase since December 2018).

US inflation rose in December, with annual figures rising from 6.8% in November to 7.0% in December, marking the largest year-over-year increase in nearly forty years, opposing the central bank’s stance and the president’s administration. Biden, who characterized rising prices as a temporary phenomenon triggered by supply chain problems during the pandemic.

Consumer prices rose and held well above the central bank’s 2% target, boosted by rising supply chain prices, the latest wave of coronavirus infections, led by Omicron variety and rising wage pressures, boosting expectations that the US central bank a bank will start to strain. the monetary policy and make the first tax rise as early as March.

The separate data showed that US consumer spending fell in December, warning that the economy had lost traction in the new year hurt by persistent supply chain problems and furious coronavirus infections, while a so-called PCE deflator – the indicator that tracks the average Price growth for total household personal consumption rose by 5.8% in December from 5.7% in November, signaling that annual inflation was rising at a rate last seen in 1982.

Consumer spending declined mainly due to rising coronavirus infections, which reduced traffic to high-contact areas such as restaurants and bars, while the early start of holiday shopping in October also contributed.

On the other hand, data on gross domestic product showed that the US economy grew by 5.7% in the fourth quarter, compared to a 2.3% increase in Q3, accelerating overall growth in 2021 to 5.7%. This is the strongest in almost four decades, after the economy contracted 3.4% in 2020.

Fed Chairman Jerome Powell said the Federal Open Market Committee is on track to raise federal funding at the March meeting, assuming the conditions are right to do so, adding further details to a FOMC policy statement that only stated that rates will soon rise.

In his speech after the end of the January policy meeting of the central bank, Powell said much has remained undecided, including the pace of subsequent tariffs or how quickly officials will let its massive balance sheet decline.

The central bank action will depend on the rate at which inflation falls below its current multi-year highs and returns to the Fed’s 2% target, however, Powell was explicit on one key point – that the central bank will end the extraordinary support it has provided to the United States . economy during the coronavirus pandemic – despite high inflation and no signs that it has reached a peak so far.

Powell said inflation has not improved, but it is likely to have worsened since the Fed’s December policy meeting, suggesting that if the situation worsens, Fed policy will have to reflect that.

Powell stressed that 2022 will be a year in which the Fed will constantly move away from the highly accommodative monetary policy introduced to address the economic impacts of the pandemic.

He stressed that the US economy was in a very different place than it was in 2015 when it began the last tight cycle, with stronger growth, a stronger labor market and much higher inflation. It suggests the Fed plans to raise rates faster than in the previous tight cycle.

The FOMC has risen in three 0.25% increases this year, while many market participants expect four tax hikes and forecast a finance rate by the end of the year of around 1%, from its current near-zero range.

The US dollar reacted positively to the Fed chair’s acceptance comments and progressed against its main counterparts, recording the largest weekly advance in seven months and reaching the highest since early July 2020.

Excellent U.S. GDP data contributed to a positive sense of more details about the Fed’s long-awaited first post-pandemic rate, as growing geopolitical tensions over Ukraine accelerated a safe haven and provided further support to the green dollar.

However, traders remain cautious as the Fed has sent out the strongest signal for a rate hike so far, but the pace of the central bank’s next steps is still unclear as policymakers seek more evidence on how inflation, the latest wave of coronavirus infections and the economy will generally react in the coming months.

This article was submitted by Windsor Brokers.