Full Steam Ahead

Sebastien Callebaut -

Taper Talks Are Intensifying In The Face Of Rising Inflation

Federal Reserve Chairman Jerome Powell has reiterated the intention of the U.S. central bank to promote a "broad and inclusive" recovery of the job market. The Fed chief vowed that the central bank would keep its eyes on a broad set of labor market statistics including how different minorities are doing.

However, some of Powell's colleagues are now openly suggesting that the pandemic has motivated so many people to retire that it may be unrealistic to think that the U.S. can return to pre-crisis employment levels before the Fed needs to tighten its monetary policy.

Recent hearings hinted at the delicate line that the Fed must walk in the coming months as it balances inflation risks with its promises.

"I've been more of a fan of doing some things maybe to take our foot gently off the accelerator sooner rather than later so that we can manage these risks [and] avoid having to press the brakes down the road" Dallas Fed President Robert Kaplan by Reuters

"Creating optionality for the committee will be really useful and that will be part of the taper debate" St. Louis Fed President James Bullard by Reuters

11 of 18 policymakers are now expecting at least two quarter-percentage-point rate increases by the end of 2023, a shift from March when a clear majority of policymakers favored no change in borrowing costs by 2024.

BENCHMARK’S TAKE

  • The rapid recovery had lead many Fed officials to change their stance and discussions about tapering are being normalised
  • The labour market and rising house prices are key as the Fed seeks to avoid the costly mistakes it made in the past while ensuring that it doesn’t halt the recovery

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Etienne Martin on Unsplash.