The Fed goes hawkish.
After almost two years as a dove, the American central bank announces a radical change of course in the face of galloping inflation.
While keeping interest rates unchanged, the Fed doubles the speed of the process of reducing asset purchases to $ 30 billion a month from $ 15 billion in November and December.
At this rate, tapering will close in March, thus granting the central bank greater flexibility on interest rates, for which - it emerges from the dot-plot - three increases are expected in 2022, three more in 2023 and two in 2024.
"We will not raise rates until tapering is closed," explains Jerome Powell, explaining the central bank's decisions at the end of the two-day meeting. "The economic recovery is proceeding rapidly but the Omicron variant poses risks to the outlook. There is a lot of uncertainty, the effects it could have on inflation, growth or employment are not clear", adds the Fed president, expecting to hit the target of maximum employment in 2022. However, the possibility of a squeeze before reaching maximum employment cannot be ruled out, Powell points out.
The central bank estimates US GDP growth of 5.5% this year with an unemployment rate at 4.3% and inflation at 5.3%. "Prices will drop next year," observes Powell, referring to inflation at its highest in decades at 6.8%. A sprint that is no longer transitory and that begins to bite the wallets of Americans, as shown by the under-expected growth in retail sales, which rose in November by a modest 0.3%.
The acceleration of tapering was unanimously decided by the Fed and "in the light of developments in inflation and improvements in the labor market", explains the American central bank which, as expected, removed the term "transitory "to describe the price trend.
In early September it "became clear that inflation was more persistent than expected. And in the October labor market and consumer price data we saw the need for faster tapering," Powell notes, calling it "very strong." the demand and incomes of Americans. "We expect solid consumer spending in the fourth quarter," said the Fed chairman, postponing the debate on the timing of interest rate hikes to upcoming meetings.
While he is optimistic about the recovery and estimates that the economy will be able to withstand the shock of Omicron, Powell - fresh from the appointment to a second term decided by Joe Biden - nevertheless warns that the post-pandemic economy will be different from that of 2020. And the Fed must be ready for the new context. For now, however, the current level of interest rates between zero and 0.25% remains appropriate. Wall Street has been worried and cautious for days awaiting the meeting and welcomes the Fed's decisions: after a session marked with a minus sign it reverses course and accelerates in the final closing with the Dow Jones and the S&P 500 up by more than 1%, and the Nasdaq which advances by more than 2%.
The focus is now on the other side of the Atlantic and on Christine Lagarde, who for weeks has been more dovish than her colleague Powell.
Expectations for tomorrow's ECB meeting include confirmation of the intention to end the pandemic emergency program (Pepp) in March 2022, and increase monthly purchases of the App program compared to the current 20 billion to cushion the repercussions.
The new Frankfurt estimates, according to rumors, should also show a marked slowdown in inflation below the 2% target in 2023 and 2024, providing arguments to the ECB president against a close interest rate hike.