The U.S. Federal Reserve announced that in December it will define the withdrawal of its multi-billion dollar bond-buying program in its quest to contain the highest inflation in three decades, at the same time that it added a new threat to the economic recovery: the new variant of the coronavirus.
The highest inflation in three decades in the United States would be more “persistent” than expected by U.S. monetary authorities, led by Jerome Powell, the chairman of the Federal Reserve (Fed). In fact, Powell assured that it is the “right time” to stop using the word “transitory”. October’s year-on-year inflation in the United States was 6.2%, the highest in 30 years. Powell confirmed the data before the U.S. Senate Banking Committee, an appearance in which he was accompanied by Treasury Secretary Janet Yellen.
“The economy is very strong and inflationary pressures are high, and therefore it is appropriate in my judgment to accelerate the conclusion of our bond purchases perhaps a few months earlier,” Powell said.
At the last Fed meeting, interest rates were left unchanged, ranging from 0% to 0.25%, but now the tapering of liquidity injections by $15 billion per month is a reality. The volume of monthly bond purchases of $120 billion began with the pandemic but would be phased out with the goal of ending the program by mid-2022.
The announcement of the withdrawal of the stimulus triggered sharp falls in the financial markets. The Dow Jones, Wall Street’s main indicator, plummeted 1.8% at midday, as did the European stock markets.
Beyond supply chain problems and inflation, the U.S. central banker said there are concerns about the economic impact of the Omicron variant of the coronavirus.
“Heightened concern about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify problems in supply chains,” Powell added.
The Fed’s next meeting is scheduled for December 14-15. It is expected to present macroeconomic forecasts, which in September stood at a growth rate of 5.9% and inflation of 4.2% by the end of 2021, but will be revised due to the weight of recent events.