Saturday, December 4

The Federal Reserve suggests that it will begin to reduce stimulus this year

A Wall Street trader watches Federal Reserve Chairman Jerome Powell's speech.

A Wall Street trader watches Federal Reserve Chairman Jerome Powell’s speech.

The president of the Federal Reserve (FED), Jerome Powell, confirmed this Friday that His body plans to start reducing support to the economy this year to stop the rise in inflation (5.4% in July, the highest since August 2008 and far from its objective of 2% in the medium term). The top leader of the US central bank, however, has insisted that the price increase is temporary and it has avoided specifying both the rate of reduction of the purchase of debt (currently 120,000 million dollars per month) and when the measure could be announced, which has been a relief for investors and has caused increases in the US stock markets and closings with gains in the European ones.

With world stock markets in the record-breaking zone and the delta variant of the coronavirus casting doubt on the economic recovery, vertigo has been installed in the markets in the last two weeks And all eyes were on for days Powell’s speech this Friday at the central bankers summit that is held every year in Jackson Hole (Wyoming). Especially when last week the minutes of the FED meeting at the end of July were published and it became known that the “majority” of its advisers are in favor of starting to withdraw stimuli before the end of the year instead of at the beginning of 2022 , which caused falls in the bags.

Powell has revealed that he himself was part of that majority: “I was of the opinion, as were the majority of the participants, that if the economy evolved in line with expectations, it might be appropriate to start reducing the rate of purchase of active this year. ” Since then, he has highlighted, the delta variant of the covid has had a greater spread, but there has also been a “strong” employment data in the US in the month of July (943,000 new jobs and unemployment drop to 5.4%). “We will carefully evaluate incoming data and evolving risks,” he added to avoid further clarification.

Rates in 2023

On the board of the Federal Reserve there are discrepancies on whether the reduction in the purchase of assets ($ 80 billion a month in public debt and $ 40 billion in private mortgage-backed debt) should be announced at its September meeting or wait for the November meeting, as well as on the speed at which the program should be cut. Powell has avoided specifying it, when the consensus among analysts so far is that the Federal Reserve will announce the measure at its meeting on 21-22 next month, which has been good for investors.

The president of the FED has also insisted on decoupling the minor purchases of debt from a possible advance in the rise in interest rates (0-0.25%), currently scheduled for 2023. “The timing and pace of the next reduction in asset purchases will not have the intention of transmitting a direct signal regarding the moment of the take-off of interest rates, “he stressed. “We have a long way to go to reach full employment, and time will tell if we have achieved inflation of 2% in a sustainable way, “he added.

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