The United States Federal Reserve (Fed) should reduce its asset purchases more quickly to open the door to raise interest rates earlier in 2022, in light of price increases that could be long-lasting in the United States, he said. Friday the International Monetary Fund (IMF).
“Inflation could be higher and (last) longer than previously thought,” particularly in economies that recovered faster from the pandemic like the United States, said IMF chief economist Gita Gopinath and Tobias Adrian, director of the Department of Monetary Markets, in a note on the organism’s blog.
A growing demand for products and services, bottlenecks in supply chains and shortages of key materials such as semiconductors pushed inflation to 6.2% annually in October, its highest level in three decades.
With the US economy close to its pre-pandemic levels, and with a tense labor market and inflationary push, “it would be appropriate for the Reserve to accelerate the cut in its asset purchases and advance interest rate increases,” they considered .
This type of direct advice on monetary policy is rare from the IMF.
At its November monetary policy meeting, the Fed revealed a timetable for withdrawing the stimulus it had implemented to support the economy from the onslaught of the Covid-19 pandemic.
The program consisted of the purchase of $ 120 billion in Treasury bonds and other mortgage-backed securities. But starting last month, those purchases began to decline at a rate of $ 15 billion a month, authorities announced.
Fed Chairman Jerome Powell said he is in favor of ending asset purchases more quickly. In other words, the institution could raise its rates before the end of the first half of next year.
IMF officials emphasize that central bankers must continue to inform their policies in time so as not to surprise the markets.
In addition, considering “the great uncertainty associated with Ómicron”, the new variant of coronavirus, public policy makers will need to closely monitor the data as another rebound in the pandemic could exacerbate supply problems, they warned.
However, they continue to believe that the “gap” between supply and demand will narrow over time and that will allow some pressure on prices to subside.
“Shipment delays and semiconductor shortages will likely ease in the second half of 2022,” the specialists noted.
Fed members seem willing
Policy makers at the Federal Reserve seem willing to accelerate the downsizing of its bond buying program because they want to take precautions in case inflation does not recede next year.
On Friday, Saint Louis Federal Reserve Chairman James Bullard stepped up his call for the Federal Open Market Committee (FOMC), the Fed’s monetary policy-setting body, to take more accelerated action.
Bullard said more colleagues are comfortable with the idea of speeding up the schedule.
“The danger now is that we have too much inflation,” he said. “The next meetings are the time for the FOMC to react.”
The Fed has kept interest rates at 0.25 percent. Last month, citing a substantial advance in the labor market and higher-than-expected inflation, he began reducing his purchases at a rate that would allow him to finish them in June 2022.
But, with inflation more than double the central bank’s 2% target and with a heightened risk that it will not regress as quickly next year, Fed Chairman Jerome Powell said this week that at the meeting of monetary policy on December 14 and 15 will consider accelerating the reduction.