Powell: Reducing inflation since the end of 2022 – Uncertainty for the economy or Omicron

The end of the Federal Reserve’s extremely accommodating policy to curb high inflation was marked by US Federal Reserve Chairman Jerome Powell during a regular press conference following the announcement of the Fed’s monetary policy decisions.

He noted that the US economy is recovering rapidly and no longer needs the “increased support” provided by the emergency asset purchase program, which allows it to be completed earlier than expected.

The Federal Open Market Committee decided today, after concluding its two-day meeting, to speed up the termination of the $ 120 billion emergency asset purchase program launched last year to support the US economy amid the adverse effects of the coronavirus pandemic.

The Fed had already begun cutting bonds and other mortgages in November, and is now accelerating market cuts to complete the emergency plan in March, signaling that its inflation target has been met.

In fact, given that inflationary pressures are expected to continue for some time and next year, Federal Bank officials “see” three interest rate hikes by the end of 2022.

“Economic developments and changes in the outlook for the economy justify this monetary policy development, which will continue to provide adequate support to the economy,” Powell said.

However, the head of the Fed expressed concern about the course of the US economy, due to the Omicron mutation.

“No one knows where the economy will be in a year from now,” he said, referring to the effects of the Omicron mutation on the economy. will depend on the impact it will have on demand and supply ”.

Inflation

Regarding inflation in particular, Powell said there were some issues of concern, such as rising prices and supply chain turmoil, adding that “it is not clear how long the labor market shortages will last.”

The head of the Fed said that inflation is expected to continue to move above the 2% target set by the Fed for a period of 2022, adding that “we expect that inflation will begin to decline by the end of next year he added.

It is noted that the Federal Open Market Committee (FMOC) of the Fed, increased its estimates for inflation in 2021, to 5.3% from 4.2% and to 4.4% from 3.7% for the construction excluding volatile food and energy prices. For 2022, it estimates that inflation will be around 2.6%, which is higher than the 2.2% estimate in the September forecast, and at 2.7% the structural one.

At the same time, its estimate for the unemployment rate in 2022 fell to 4.3% from 4.8% forecast in September.

Rising interest rates

Regarding the increase in interest rates, Powell pointed out that they will start to see the American labor market reach pre-pandemic levels, something that he added that “we predict that it will happen in 2022”.

He clarified, in fact, regarding the increase of interest rates that “it is a decision that we have not yet made”, while when asked when the increases are expected to start, he replied that no relevant move will be made until the tapering is completely completed.

Asked by the FMOC to report that the forthcoming interest rate hikes will depend solely on the course of the labor market and when it is expected to return to pre-pandemic levels, Powell said the labor market has improved, but to achieve this goal “it may take some time.”

However, he later said that “the Fed may raise interest rates before achieving the goal of a full recovery in the labor market.”

“We are not going back to a pre-pandemic economy. So, the labor market after the pandemic will be different, as will employment,” he said.

In each case, they have seized it, despite obstacles we can scarcely imagine. ”