Too little, too late?

On Wednesday, the Federal Reserve of the United States – its central bank, “the Fed” – announced that it will accelerate the pace of the reduction of monetary stimulus – that is, it will continue to use “the machine”, but will print less new money each month. , given the increase in inflation that is taking place in your country. It is good that they are finally beginning to take action to “fix” the problem that they themselves generated – even if they do not accept it – but I think that the decisions they are making are very small and, probably, they were made very late.

Jerome Powell, the president of the Fed, admitted that inflation in the country is already “generalized” in all sectors, and predicted that it will remain above the institution’s objective of 2 percent “until well into 2022.”

The Federal Open Markets Committee (FOMC) decision and the subsequent Powell conference did not provide many surprises and remained what analysts had anticipated: keeping the rate close to zero, doubling the reductions in monthly bond purchases, advancing the end of these purchases by March 2022, and leave the door open for several increases – three – in the interest rate during 2022.

The decisions they made leave open the possibility for inflation to continue rising a little more, since the monetary injection will continue for a few more months. Powell first accepted a few weeks ago that inflation was not going to be “transitory”, and this Wednesday he acknowledged that it is generalized, although, as always, they do not accept responsibility for that effect. Taking into account data such as the one published this Wednesday of an increase of 9.6 percent in the Producer Price Index, it is most likely that inflation has not yet reached the peak and it will continue to grow in the coming months, for It would not be surprising if, in the next FOMC meetings, they are forced to make more drastic decisions.

On the other hand, there is still the possibility – albeit remote – that their new package of “social spending” will be approved for Biden, with which they will face the serious problem of who is going to buy the debt they are going to issue to finance it, if the Federal Reserve is not going to do it anymore. This is going to be one of the most serious problems that Powell will face in 2022, especially considering that Biden nominated him to continue in the presidency of the Federal Reserve, so the exit is not going to be easy. The few changes announced by the FED this Wednesday are just the beginning of a long and tortuous path to correct the mistakes they have made throughout more than a decade, since the most recent crisis.

Meanwhile, this Thursday the Bank of England surprised the world by announcing an increase in its reference rate, from 0.10 percent to 0.25 percent, warning that the threat of inflation was greater than that of the omicron variant, after this rose from 4.2 percent to 5.1 percent in November. For its part, the European Central Bank (ECB) also announced changes in its monetary policy, specifically reducing asset purchases, although they still do not say anything about whether they would increase interest rates in 2022.

In short, the main central bankers in the world are “worried” about inflation, but no one is willing to put a brake on it in the short term, only to start moving in that direction, which implies that it will continue for many more months. Powell’s argument is that “drastic” action should not be taken, but the decisions they are making are likely to be very small and, furthermore, too late.

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