The Fed is expected to support the first rate hike since the pandemic era in March


The Federal Reserve is ready to confirm its plans to raise interest rates in March for the first time since the start of the pandemic, as the US Federal Reserve sets a more aggressive course to tighten funds in the face of high inflation.

Fed officials will gather this week for their inaugural policy meeting in 2022, the first since the central bank made its fight against the rapid rise in US consumer prices its top priority.

The Fed has solidified its rhetoric in recent weeks about the risks posed by high inflation, with President Jay Powell calling it a “serious threat” to sustainable economic expansion and a stable labor market recovery this month.

His top politicians have also indicated that they are ready to act violently to ensure that inflation does not take root, considering raising interest rates “earlier or faster” than expected and rapidly shrinking the huge balance of the Fed this year.

Combined with growing evidence that inflation is widening and the labor market is recovering rapidly, the central bank is well placed to move in March, say many Fed officials and Wall Street economists.

“The labor market is tight, wage inflation has risen and price inflation has risen sharply,” said Peter Hooper, global head of economic research at Deutsche Bank, which has worked for the Fed for nearly three decades. “Should we still be at the level of a crisis of support for the economy? No.”

In addition to confirming that the Fed may soon raise interest rates, economists are also looking for more clarity on the way forward after the first adjustment. The central bank’s policy statement will be released on Wednesday, followed by a press conference with Powell.

Fed observers are divided over whether the central bank will also announce the immediate end of its asset purchase program, which is due to end in March. Powell confirmed this schedule earlier this month, but ING said there was “no reason” for the central bank to buy additional bonds.

In December, Fed officials pooled about three-quarters of the increase in 2022, with three more in 2023 and two in 2024. This month, however, a growing number of politicians laid the groundwork for more.

One of the most prominent employees and a member with this right to vote this year in the Federal Open Market Committee – James Bullard of St. Louis – said he supported four interest rate hikes this year. Governor Christopher Waller said five might be appropriate if inflation remains high.

Jason Thomas, head of global research at Carlyle, has come to the conclusion that seven this year is not “amazing”.

“What the Fed will prepare us for is the potential for raising interest rates at every meeting after January,” he said.

Some have speculated that the Fed may also consider raising interest rates by half a percentage point in March, something it has not done since May 2000.

Bill Nelson, a former deputy director of the Fed’s monetary affairs department, said the central bank should “prepare the public” for the opportunity this week.

“The gradual response to the current circumstances will simply leave them more and more behind the curve and eventually end in a very sharp adjustment,” said Nelson, who is now chief economist at the Institute for Banking Policy. “So many people are accepting too many signals from the very gradual slowdown last time and don’t think about what it means to adopt a political position that is appropriate to curb the economy and reduce inflation.

However, Jan Hatzius, chief economist at Goldman Sachs, whose forecast is in line with market expectations of a four-quarter increase in 2022, said such a dramatic move is unlikely and unnecessary.

“The question is really more, do you see a series of consecutive meetings?” He told the Financial Times during an event hosted by the Chicago Board of Global Affairs on Thursday. “It’s an opportunity.”

The sudden shift towards a much brighter Fed policy that threatens to undermine growth prospects is a “key risk of a downturn” for financial markets this year, warned Holly MacDonald, chief investment officer at Bessemer Trust.

“Success is not just the eradication of this sharp inflation. Success is far from [zero]”Said Matt Toms, chief investment officer for fixed income at Voya Investment Management, referring to the current level of federal interest rates. He added that the Fed should raise interest rates only gradually, given that both inflation and growth are expected to slow later this year.

Stock markets have been spinning sharply in recent days as investors have mastered the effects of the Fed’s faster tightening, with global stocks suffering their biggest drop in more than a year last week.

Economists are also expecting further details this week about the Fed’s plans to shrink its balance sheet, which has more than doubled since early 2020 and is now just under $ 9 trillion.

In its first in-depth discussion on the subject in December, the FOMC agreed to a faster slowdown than the pace set after the 2008 global financial crisis.

Nancy Vanden Houten, a leading economist at Oxford Economics, predicts that the Fed will eventually introduce monthly redemption ceilings of $ 30 billion for government bonds and $ 15 billion for mortgage-backed securities in the third quarter and later rose to $ 60 billion and $ 30 billion, respectively.

At this rate, the balance will fall below 6 trillion dollars in 2025, according to her estimates.



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