September 2021 Fed Update: Officials Worried About Supply Chains

Federal Reserve officials were preparing to start slowing monetary policy support as early as mid-November, minutes from their Septembe...


Federal Reserve officials were preparing to start slowing monetary policy support as early as mid-November, minutes from their September meeting showed this, and policymakers debated when they might need to hike rates amid rising inflation risks.

The Fed bought $ 120 billion in bonds each month and kept the federal funds rate close to zero to make borrowing cheap and circulating money through the economy, fueling demand and accelerating the recovery. But central bank officials signaled after their September 21-22 meeting that they could announce a plan to reduce those asset purchases as early as early November. The meeting minutes, released on Wednesday, provided further details on that plan.

The minutes suggested that “if a decision to start cutting back on purchases is made at the next meeting, the downsizing process could begin with monthly purchase schedules starting in mid-November or mid-December” .

The process could be completed by the middle of next year, the minutes say. This confirmed the schedule that Jerome H. Powell, the chairman of the Fed, presented in his press conference after the meeting.

At the same time, Fed officials have made it clear that they will continue to support the economy with low interest rates as the labor market continues to recover. Their hopes of moving very gradually with regard to rate hikes could be complicated by the rapid rise in prices, however, as supply chain disruptions from the pandemic persist and rising rents open the prospect of ‘sustained increases.

The minutes showed that “various” meeting participants believed rates should stay at or near zero for a few years, warning that the long-term trends that had lowered inflation before the pandemic would come back to dominate. . But “in contrast, a number” of Fed officials said rates are expected to rise next year and that “some of those participants saw inflation likely to remain high in 2022 with upside risks.”

The committee as a whole was concerned about supply chain disruptions, which pushed inflation up and held back growth. They discussed several bottlenecks, including in the housing industry.

“Participants noted that residential construction has been held back by shortages of materials and other inputs and that home sales have been held back by the limited supply of available homes,” the minutes said. Later, they added that “companies in several sectors were facing difficulties in meeting high demand due to widespread supply chain bottlenecks as well as labor shortages.”

And officials have noted that it may take time to wear off.

“Most participants saw inflation risks as weighted up because of fears that supply disruptions and labor shortages could last longer and have larger or more persistent effects on the economy. prices and wages than they currently assumed, “the minutes said.

“Participants noted that their district contacts generally did not expect these bottlenecks to be fully resolved until next year or even later. “

Consumer price jumped more than expected last month, data released Wednesday showed. The consumer price index climbed 5.4 percent in September from a year earlier, faster than its 5.3 percent increase through August. From August to September, the index rose 0.4%, also above expectations.

Housing prices have increased and food, especially meat and eggs, has cost consumers more. When volatile food and fuel prices are suppressed, inflation is still fast, at 4 percent over the year until last month.

Fed officials have repeatedly said they expect price gains to moderate as the economy returns to normal, but they have adopted an increasingly suspicious tone as the inflation has been slow to moderate.

“I believe, like most of my colleagues, that the risks to inflation are on the rise, and I remain attentive and attentive to the underlying trends in inflation”, Richard H. Clarida, vice-president president of the Fed, said during a speech Tuesday.

Among the concerns: Inflation expectations appear to be recovering, at least by some measures.

The Federal Reserve Bank of New York Survey of consumer expectations showed this week that medium-term inflation expectations – those for the next three years – climbed to 4.2% in September from 4% in August. This is the highest level since the start of the series in 2013. Short-term expectations jumped to 5.3%, also a new high.

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Newsrust - US Top News: September 2021 Fed Update: Officials Worried About Supply Chains
September 2021 Fed Update: Officials Worried About Supply Chains
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