FOMC: Fed to stay at “safe home” before establishing the tapering guidance

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While the 3rd Fed meeting of the year will take place tomorrow, we have mentioned that this meeting will focus more on how much progress the Fed will make on the upcoming change than on action. At this point, should we be worried about rising inflation? We know the Fed’s criteria on this issue, a sustainable inflation issue that really contributes to the economy is important. The details of the current figures point to a periodic inflation fed more than the price effect. Especially the increase in commodity prices is the most important driver of this.

For this reason, an April meeting with a FOMC that will not disturb the markets and a highlight of economic reservations by Powell seems like the most reasonable option for everyone. Powell’s logic on this issue was actually put forward at the beginning of the pandemic period: to do the most that can be done rather than give little support to the economy… Many indicators point to recovery, which brings the US economic activity to 2019 levels. This is the positive side of the business… On the downside, the unemployment and pandemic still pose a risk. In this regard, the Fed needs to be sure of permanent progress towards the targets.

At the last meeting, the FOMC reiterated its commitment to continue current asset purchases until “significant progress” towards inflation and employment targets, but any upside surprises to GDP could increase the risk of “tapering” earlier than expected. Related to this, when the forecasts are updated in June, we may have a chance to understand some details in terms of planning. Also, “Will consumers spend some of the accumulated surplus savings to ignite the inflationary explosion?” The subject stands in a very critical place. Or “is there such a need for households to spend more at the point of recovery?” The question can also be asked. This will occur somewhat when consumers return to their pre-epidemic spending habits, which will roughly coincide with the normal relationship between spending and income. It depends on where you look at it in the context of inflation or growth. Whether the growth brings inflation or how much inflation pressure it will cause will be an important criterion in terms of tapering timing.

The Fed seems to remain in the safe zone for now, but as the economy continues to recover and boom, the pressure for tapering will increase. When the June or July FOMC meetings will take place, the economy is likely to be in a better position.

Kaynak Tera Yatırım
Hibya Haber Ajansı

Türkiye Ajans

[email protected]

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