With Powell’s renomination in the Fed, attention is focused on the pace of reduction of bond purchases

As Federal Reserve (Fed) Chairman Jerome Powell prepares to spend four more years at the helm of the world’s most powerful central bank, the focus is on whether he and his colleagues will have to more quickly withdraw support from emergency to the US economy in the face of high inflation.

By renominating Powell for a second term as Fed chief on Monday, President Joe Biden made clear that both the government and the central bank will take steps to address the rising costs of everyday items, including food, gasoline and money. rental.

Inflation accelerated in October to its fastest annual rate in 31 years, testing the Fed’s assumption that the COVID-19 pandemic-induced outbreak would be temporary.

The extent of the debate among Fed policymakers about how quickly they should phase out their monthly asset purchase program could be revealed on Wednesday when the central bank publishes the minutes of its latest policy meeting.

Fed officials agreed at the November 2-3 meeting to begin reducing the $ 120 billion in monthly purchases of Treasury bonds and mortgage-backed securities, a program introduced in 2020 to help the economy during the pandemic. , with a schedule that anticipates its end for June.

However, they left open the possibility of altering the pace of the reduction in asset purchases. “Meeting minutes will be closely scrutinized to determine how high the bar is for adjusting the pace of downsizing.“, said Sam Bullard, senior economist at Wells Fargo.

Since the November meeting, there has been a re-acceleration in job gains and an increase in retail sales, but most surprising has been inflation’s resistance to slowing down, as Powell and many others in the US expected. Fed. Investors are now betting that the entity will have to raise interest rates three times next year.

The minutes of the meeting due out on Wednesday are likely to provide more details on the depth of the malaise over inflation among the authorities of the Fed, most of whom spent the first part of the year insisting that price increases would be short-lived, as supply chain problems were fixed as the economy reopened.

“In May it was easy to despise him, but with each passing month they take him more seriously. And they will probably be more comfortable acting given the improving labor market with full employment closer on the horizon.“, he pointed Michael Feroli, Chief Economist for the United States of JPMorgan.

The vice president of the Fed, Richard Clarida, who will be replaced by Lael Brainard early next year when his term expires, said last week that on the agenda of the December 14-15 policy meeting will be the discussion on accelerating the reduction of the purchase of bonds to give more flexibility to the date to raise rates from their current level close to zero.

That was the latest sign that monetary authorities are now deeply in tune with the path of inflationary pressures, which have intensified and widened, causing a headache for Powell, who modified the Fed’s framework last year to prioritize your maximum employment goal.

Powell, who will begin his second term at the helm of the Fed in February if his appointment is confirmed by the Senate, still expects inflation to dissipate by the end of next year, but noted, while standing next to Biden in the White House on Monday, that Fed it is very focused on price pressures.