The Fed admits that inflation worries and begins to tighten monetary policy

21 years ago, the economist Kevin Hasset and the Columnist James Glassman published the Book Dow 36,000, who claimed that the Dow Jones, which is the index of t

The
 Fed
 admits that
 inflation
 worries
 and begins to
 tighten monetary policy

21 years ago, the economist Kevin Hasset and the Columnist James Glassman published the Book Dow 36,000, who claimed that the Dow Jones, which is the index of the thirty largest companies listed on Wall Street, which was at level 10,000, It would reach 36,000 at some point between 2002 and 2004.

In the history of erroneous predictions, Dow 36,000 plays a prominent role. The index reached that level on Tuesday, right on the eve of the Federal Reserve announced the beginning of the currency of currency of monetary policy. Yesterday, when the Committee of the Open Market, which is the agency of the American Central Bank that decides the monetary policy, announced the strategy that will continue to carry out this policy change, the Dow Jones rose even more, and closed at 36,153.

So the market had already discounted the announcement of the Federal Reserve. The central bank announced that it will start this month to reduce purchases of public and private debt -This last, mortgage-and that will continue next month, before reexamining the situation. If there are no changes, the dismantling of the debt purchase launched in March 2020 to combat the effects of the Covid-19 will end in June. Of course, at the press conference after the meeting, the president of the Central Bank, Jay Powell, launched a clear message: the end of debt purchases "does not imply any direct signal in relation to our interest rate policy" . In principle, no type rises are expected up, as soon as early 2023.

But that does not dispel doubts about the behavior of the US economy in particular and world in general. At the press conference after the meeting , the president of the central bank , Jay Powell , gave a message : "We're not going behind the curve." Is an English expression meaning , politely , to go behind the events .

However, the underlying deflator of private consumption, which is the indicator that the Fed has more in mind to decide monetary policy, is at Maximums since 1991. In Washington you have to wait three months to buy a washing machine of certain characteristics, by the Simple reason that there is no. The timeout period to receive an Apple Watch or an iPhone 13 Pro of the last generation ranges between three and six weeks. Missing products, and, therefore, prices go up and companies can not sell everything that consumers demand.

The world supply chain has been short-circuited due to COVID-19, and it turns out that reopening industrial plants is more complicated than closing them. To this is added, as Powell insisted, the impact of the Delta variant, which slowed the activity in summer and is still causing havoc in the United States where, due to the low vaccination rate, about 1,500 people are dying per day . Finally, there is the monetary and fiscal stimulus, which have increased the available income of citizens, to form what some fear it is an inflationary cocktail.

The response of the Federal Reserve : patience . In the literal sense . " Creeos we have to be patient . If a response is required , we will not hesitate ." However , inflation is difficult to anticipate, and , to date , both the Treasury and the Government of Joe Biden have been wrong when predicting the end of this episode of high prices . First inflation would return to its normal channels in late 2021. Now , a year later .

Indirectly, the Federal Reserve acknowledged that prices are starting to become a problem . In the statement announcing the cut bond purchases , the central bank acknowledged that "inflation remains high ," though it is , according to his analysis , a reflection "mostly of factors transient expected " . The vine of all , we hope that this analysis is more correct than Glassman and Hassett .

Updated Date: 08 November 2021, 06:13

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