One of the most curious subjects in the monetary policy transformation phase, under the highest inflation in the last thirty years in the US and the ongoing effects of Covid-19, was the new chair of the Fed. At this point, continuity was taken as a basis in the Fed, and Biden reappointed Powell as chairman. Brainard, who was named for the presidency, was promoted to the vice chair position. As the most important pioneer of conventional policy implementation, the Fed will realize the transformation of financial conditions with its planned course in the broad term. In this context, although the Powell election is relatively "hawkish", we think that it is necessary to consider the current route from a broad perspective.
In the recovery phase of the US economy from the pandemic, the need to protect from the rise in consumer prices has emerged as an after-effect. The Fed, which is normally cautious about interest rates and considers raising rates at the latest possible stage, may therefore be in a position to act more proactively. Inflation is an issue that affects income erosion and income inequality. The inflation boom, which came with the bottleneck created by the supply and demand imbalance, combined with the acceleration in demand after an unprecedented pandemic, became compelling. Uncertainties over inflation and employment targets persist amid calls for further tightening, and attention is shifting thoughts on the pace and timing of further Fed policy moves.
Powell's re-nomination also demonstrates government support on the Fed, based on a belief in continuity. Regarding the applied ground and planning, under the guidance of policy normalization, we will wait for the continuation of the current order, at least within the framework of the recovery in the labor market and the pace of inflation, which may be open-ended. The December meeting may be the scene of a critical adjustment at this point. The continuation of this effect due to the rate of increase in prices and tense supply chains may mean that a policy ground that will accelerate the economy is withdrawn and adjustment may therefore be required. Thus, a quicker-than-planned withdrawal of the massive asset purchase program could mean faster asset purchase cuts if inflation hold steady, in which case an earlier rate hike. The FOMC minutes can help decipher the mix of members' thoughts on how the Fed's goals are progressing.
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