After months of noise in the market, a lot of speculation, and a sudden change of speed on the part of the Fed, the US central bank this week entered the war to fight inflation, a monster that was already out of control when another war, well most dangerous and regrettable, came on the scene in eastern Europe. After indicating that the rise in the cost of living was transitory in the first half of last year, due to a disruption in the supply of raw materials resulting from the COVID-19 pandemic, Jerome Powell and other members of the FED corrected the ” hand”, a few months later, when they removed the word temporary, from the analysis of inflation far above the limit.
A good part of the relevant analysts and investors, at the time, were against the determination of temporary, warning that the central bank would stay “behind the curve of events”, which would become all too evident with the continuous increase in price increases, which did not show any signs of slowing down until the end of the year, quite the contrary, which is why central bank members had to significantly change the pace of monetary policy normalization, reducing the dovish mentality and preparing the market for hawkish times, something which was facilitated by the fact that more containment-minded members of the Democratic Party joined the Fed to replace others who had been nominated by Trump, with a more dovish mindset.
A few months after this change, and with inflation already out of control, about four times the ideal level, the world’s main central bank finally acts, but in a way that does not shock the market, that is, with a minimal rise and advancing the possibility of several climbs this year and may even occur at all meetings. In the field of balance sheet reduction, the door was left open, that is, it will start at a subsequent meeting, without saying which one, in a move of clear preparation of investor sentiment. It remains to be seen whether the timing and the way in which the FED reacted will be enough to stop inflation that, according to Powell, will continue to rise until the middle of this year, falling significantly only in 2023.
