The new policy brief indicated a more aggressive program of rate hikes, but the stock market was undisturbed by the news
The Federal Reserve indicated that it will pursue a more aggressive policy to fight inflation in a new FOMC statement released on Wednesday.
The statement indicates that the Fed intends to implement three rent hikes in the 2022 calendar year, as well as reducing its asset purchase program by $30 billion per month, doubling the rate of reduction in order to bring the program to a close by March of next year.
This statement constitutes a marked shift from the temperament of Fed officials earlier this year. As recently as last summer, the consensus among bankers was unenthusiastic for any rate hikes in 2022, with many experts believing that rate hikes could wait another year until 2023. The new announcement comes amid a wave of inflation, which has caught many economists, including those of the Federal Reserve, by surprise in its magnitude and rapidity. Monetary policymakers are feeling greater pressure to address the issue, with a growing chorus of experts calling for a faster and more drastic regimen of rate hikes to prevent inflation from spiraling out of control.
As the Fed addresses the ongoing economic concerns rooted in the CCP virus pandemic, it faces a delicate situation. On one hand, Wall Street continues to advocate for light hand with regard to rate hikes, and drastic action to mitigate inflation can cause stock market downturns. However, everyday consumers and small businesses face an atmosphere of scarcity as they find wages struggling to keep pace with rising prices, exacerbated by a backdrop of ongoing supply chain stresses. Thus, the Fed faces an unenviable and difficult predicament, as it must mitigate inflation without rocking the boat severely enough to sink the stock market.
In the immediate aftermath of the Fed’s announcement, the stock market has gained significantly, with investors reassured that the measures were less severe than many analysts initially predicted. Previously, Chairman of the Federal Reserve Jerome Powell had indicated a more hawkish stance in recent statements, and the announcement served to reassure the markets of the Fed’s more delicate touch.
It remains unclear, however, whether the proposed measures will be sufficient to offset the immense inflationary pressures facing markets and prices in the upcoming year.