Inflation in the US is at its highest level in 40 years, putting the US Federal Reserve under pressure.
(Photo: Reuters)
Washington The members of the US Federal Reserve discussed the high inflation at length at the January meeting. In view of the approaching full employment on the labor market, prices would rise too quickly, which would justify an early increase in the key interest rate. This emerges from the minutes of the meeting, which were published on Wednesday evening.
“Most participants noted that if inflation does not ease as expected, it would be appropriate for the committee to end supportive monetary policy faster than currently expected,” read the minutes of the FOMC’s Jan. 25-26 meeting .
Despite the clear signals for a rate hike at the next meeting in mid-March, the markets reacted with relief. On Wall Street, the market-wide index S&P 500 is turning positive, the tech index Nasdaq limited its losses. Conversely, the yield on 10-year US government bonds fell slightly.
“The protocol offered little more than the change of course previously announced,” Ian Lyngen of BMO Capital Markets told Bloomberg. Earlier there had been speculation that the Fed could hike rates more than previously expected in March, by 50 basis points instead of 25. Nothing has been announced about the pace at which the Fed intends to shrink its balance sheet. The central bank would thus withdraw liquidity from the markets.
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Inflation in the US is at its highest level in 40 years. In January, consumer prices rose 7.5 percent year-on-year. The Fed has therefore revised upwards its forecasts for rate hikes this year in order to bring price pressures under control.
A 25 basis point rate hike to the 0.25-0.5 percent range at the next Fed meeting on March 15-16 is already fully priced in the markets. Recently, however, more and more market participants assumed that the Fed would raise interest rates faster and more vigorously. Investors now expect interest rates to rise by at least 150 basis points in 2022, up from 75 basis points a few weeks ago.
More: Goldman Sachs chief investment strategist on turbulent stock markets: “Stay invested!”