Pressure, inflationary pressure that is, is starting to grow on the Federal Reserve to start dialing back its mammoth asset purchases and zero percent interest rate policy. While its main position remains that the recent rise in inflation is only “transitory,” the Fed may have at last started laying the groundwork for an earlier move toward to a less accommodative policy rather than waiting until 2023.
That much became clearer in the release of the minutes of the Fed’s April monetary policy meeting last week.
“A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. In other words, the Fed revealed that it is at least thinking that it may have to reduce its asset purchases—currently, $120 billion of Treasury securities and agency mortgage-backed securities each month—and possibly raise interest rates earlier than it thought because of the inflation threat brought on by a booming economy and government stimulus.
While it may be fair to cut the Fed some slack and let it be more patient in assessing the shape of the economy post-pandemic before it makes any fundamental policy changes, make no mistake that economic growth and inflation are revving hotter and show no sign of being as “transitory” as the Fed believes. Continue reading "The Fed's 'See No Inflation' Posture"