That prompted the Fed to change course late last year — and to do so rather abruptly.
“Inflation really broke out late last spring, and we had the view – very, very popular in the forecasting community – that this would be temporary,” Mr. Powell said in December. But officials grew increasingly concerned as job cost data edged higher and inflation indicators turned hot, he said, so they turned around policy.
Frequently asked questions about inflation
What is inflation? Inflation is a Loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as an annual change in prices for everyday goods and services such as food, furniture, clothing, transportation, and toys.
“It was basically higher inflation and faster, it turned out much faster, progress in the labor market,” Mr. Powell said.
Asset prices have been steadily falling in recent weeks as investors try to understand the Fed’s new stance and its implications for the economy. Stocks have general declineBitcoin prices have fallen and bond prices are rising as part of a symphony.
Had the Fed changed course sooner, “it wouldn’t have felt like the Fed was behind the curve and that would have scared the market that they were going strong,” said Markowska at Jefferies.
Part of the challenge is that while the central bank has clearly outlined when it will slow down its bond purchases and raise interest rates – emphasizing what conditions the bank wants to see – it has yet to do so. clear on his next moves.
Mr. El-Erian said that the Fed should immediately stop buying bonds while clearly signaling the path to raising interest rates ahead. Otherwise, he said, officials risk having to withdraw support all at once later this year.
But there are also arguments for gradualism.
Foreign economic officials are nervously watching the Fed’s path, especially as other central banks are also pulling back support amid widespread price booms – such as the Bank of China. The UK central bank raised interest rates. As major economies increase the cost of borrowing domestically, it can cause capital outflows from emerging markets, affect exchange rates, and damage or destabilize economic growth. their.
“If the major economies do not stop or turn around in their monetary policy, there will be serious negative effects,” said President Xi Jinping of China. said in a speech this month, warning of “challenges to global economic and financial stability.”
https://www.nytimes.com/2022/01/25/business/economy/fed-economy.html Why critics fear Fed policy change could be late and sudden