MAY 24, 2021 – FED HAS STARTED TO SIGNAL SHIFT FROM EASY MONEY POLICY
Last week, both the St. Louis Fed President James Bullard and Atlanta Fed President Raphael Bostic addressed the Fed’s policy response to the pandemic and hinted toward the possibility of an adjustment.
Bullard said if they felt the pandemic was largely over, they could talk about adjusting monetary policy, but stated they are not quite at that point yet, “but it does seem like we are getting close.” Bostic said, “We’re going to have to be very nimble in terms of our monitoring of the economy and our policy responses.”
Their remarks seem to be addressed more toward the pace of asset purchases than raising rates; Fed Chair Powell has stated the Fed should give the markets plenty of advance warning before it begins reducing the purchases. The Fed voted unanimously in April to keep buying at least $120 billion of treasury and mortgage bonds every month and to hold overnight interest rates at zero. The aim is to reduce borrowing costs for individuals and businesses, stimulating economic growth and getting the labor market to recover.
However, since the April meeting, the CPI rose to 4.2%, and core prices rose in April at the fastest pace since 1981. The central bank thinks price pressure is “temporary, even if significant”, but if they are wrong and inflation lasts, the Fed is ready to act accordingly.