Will the US Fed Advance the Timing of Interest Rate Hikes?

Inflation Rate Hits Highest Level in 31 Years
FOMC Members Say "Tapering Must End Quickly and Prepare for Rate Hikes"

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), is preparing for the possibility of an early interest rate hike following tapering (reduction of asset purchases). This is due to growing concerns over inflation soaring to the highest level in 31 years.

According to the minutes of the November Federal Open Market Committee (FOMC) meeting released by the Fed on the 24th (local time), the majority of members argued that inflationary pressures are increasing and that tapering should be ended sooner in preparation for raising the current zero interest rate.

The minutes stated, "A majority of members assessed that if inflation remains persistently above the Committee's target level, they should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than currently anticipated."

The minutes also noted, "While members still emphasized patience, they would not hesitate to take appropriate measures to address inflationary pressures that pose risks to long-term price stability and employment goals." Members also expressed the view that inflation will decline significantly next year but uncertainty has increased.

The economic indicators released that day also increased the need for a rate hike. The personal consumption expenditures (PCE) price index for October, which the Fed considers important, rose by 4.1%, the highest in 31 years. This far exceeded the Fed's inflation target of 2%.

The number of new unemployment claims for the week of November 14-20, announced by the Department of Labor, was 199,000, the lowest in 52 years. This was the first time since the COVID-19 pandemic that the figure fell below 200,000.

The Wall Street Journal forecasted that considering the economic indicators and the Fed minutes, the tapering amount could increase to $30 billion per month at next month's FOMC meeting, with tapering completed by March next year and interest rate hikes possibly beginning in the first half of the year.

Central banks around the world have already raised interest rates one after another. Emerging countries such as Brazil, Russia, and Hungary have raised rates six times this year.

This content was produced with the assistance of AI translation services.