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Tags: Financial Markets | Infrastructure | Money | Federal Reserve Chairman Jerome Powell

Powell, Still at Fed Helm, Cannot Sidestep Inflation Pressures

Powell, Still at Fed Helm, Cannot Sidestep Inflation Pressures

By    |   Monday, 22 November 2021 02:34 PM

President Joe Biden decided to renominate Jerome Powell for a second term as chairman of the U.S. Federal Reserve, a seeming vote of tremendous confidence.

However, with evidence of inflation taking a firmer grip on the economy and it getting worse in the months ahead, Powell is bound to face continued questions -- if not outright criticism -- for his role in contributing to this rising inflation in the United States.

Just a week after the Nov. 3 announcement by the Fed that it would begin scaling back on its monthly $120 billion bond buying program, various data sets issued by the U.S. government began pointing to evidence of steep inflation taking hold.

The most concerning number, in "Pressure on Fed's Powell Is Rising as Inflation Worsens," on October data from the Department of Commerce, found that inflation grew over the previous 12 months by the most in three decades. U.S. consumers and businesses are now grappling with an inflation rate of 6.2%.

The inflation spike has squeezed consumers, posed a threat to the Biden administration and intensified pressure on Powell to act.

Some economists — and some Fed officials — want the Fed to move fast to rein in its ultra-low-rate policies. Other policymakers, worried about what impact that could have on inflation and jobs, favor a more patient approach to interest rates. The result is a split within the Fed that Powell will likely have to settle, with potentially far-reaching consequences for the economy.

Interest Rate Hikes

Then, paring back on the bond purchases will then be paired with rate hikes, which economists seem to agree will begin next year, possibly as early as June. Some say, however, rate hikes may not start until November 2022.

Thus far, every time news of potential action by the Federal Reserve is announced, the markets digest the information and continue marching upwards, with market watchers saying that the major indices have already baked in these factors.

Fed to Meet in December

The next major Fed meeting of importance to the economy, inflation and interest rates occurs in December. Economists expect the Federal Reserve to discuss whether the government should accelerate the reduction, or tapering, of its monthly bond purchases. The Fed began purchsing $120 billion a month in Treasury and mortgage bonds beginning last summer. Powell announced Nov. 3 that the Fed would taper those purchases, which have been intended to lower longer-term rates and encourage more borrowing and spending.

Powell has said the purchases will be pared by $15 billion a month in November and December, which would end them altogether by June. But the Fed did not commit to sticking to that pace; it held out the possibility of accelerating the pullback. Doing so would give the Fed the option to raise its key short-term interest rate as early as the first half of 2022. A rate hike would, in turn, lead to higher consumer borrowing costs for things like mortgages and credit cards.

In "Why US Inflation Is So High, and When it May Ease," other experts warn that President Biden's Build Back Better act, and the trillions more that it would pump into the U.S. economy, will only exacerbate inflation. In that way, pressure is taken a bit off of Chairman Powell and, instead, put on the Democrat lawmakers pushing through the Biden agenda.

Gallup reported the last time inflation was named as the most important problem by 7% of Americans was in April 2001; the last time mentions of inflation were significantly higher than now was in May 1985 when it registered 11%.

Inflation Fears

Americans' concern about the economy reached a COVID-19 pandemic high this month, a new Gallup survey has found.

According to Gallup, 26% of Americans cite an economic concern — inflation, unemployment, or the economy in general — as the top problem.

© 2021 Newsmax Finance. All rights reserved.


StreetTalk
President Joe Biden decided to renominate Jerome Powell for a second term as chairman of the U.S. Federal Reserve, a seeming vote of tremendous confidence. But with inflation taking hold, this is a serious problem that Powell will have to quickly address.
Federal Reserve Chairman Jerome Powell
640
2021-34-22
Monday, 22 November 2021 02:34 PM
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