Will the Fed tighten monetary policy? Let's take a look at how principal officials of the Fed view employment and inflation

After the GDP of the United States in the first quarter was converted into an annual rate, it increased by 6.4% year-on-year, and the actual quarterly growth was 0.4% year-on-year. It is expected that the economic growth rate in the second quarter will be even higher.

Although the US economy is gradually recovering, the job market does not seem to be picking up in line with economic growth. The number of new non-agricultural jobs in the United States in April was only 266,000, which was far below market expectations. According to analysis, it is the excessive financial subsidies that cause people to be unwilling to work. At the same time, the level of inflation in the United States is rising rapidly. The latest data released by the U.S. Department of Labor shows that in April, the U.S. CPI in April and the core CPI in April increased by 4.2% and 3% respectively year-on-year, which was significantly higher than market expectations. Data released by IHS Markit also showed that among the major advanced economies, the average sales price of goods and services in the United States increased the most in April. Among them, the delivery date of global suppliers in April was extended at a record speed due to the insufficient production capacity and further delays in logistics, which includes container shortages and port congestion. Supply delays are particularly common in Europe and the United States.

What will the Fed do when the pace of employment and inflation has not yet been coordinated? At present, the signal released by the Federal Reserve to the outside world is that "doves still occupy a dominant position", and the Fed believes that the U.S. job market still needs further development. The market also expects that the Fed will not raise interest rates in the near future. We know that the Federal Reserve's statutory goal is to maximize employment and maintain price stability, and Federal Reserve officials with voting rights will vote to determine the direction of monetary policy. Therefore, it is important to understand the views of Federal Reserve officials with voting rights on employment and inflation at the Federal Open Market Committee (FOMC) meetings, from which we can find clues to the direction of policy.

On the whole, the officials mentioned above believe that the U.S. job market is far from returning to normal levels, and there is still a distance from the Fed’s goal. Inflation does have risen, but it may be just temporarily affected by some factors such as the base effect and supply bottlenecks, and it will not have a major impact on inflation expectations. Therefore, it is no problem to think that the Fed will maintain a loose monetary policy. The above views were published before the U.S. inflation data were released, but the views mentioned above constitute the basic views of these officials on the U.S. economy. It still remains to be seen whether the current inflation data can change their previous views.

Of course, there are other voices. In an interview with reporters of the Atlantic Monthly in early May, the former chairman of the Federal Reserve and the current U.S. Treasury Secretary said that it may be necessary to raise the federal funds rate moderately to prevent the U.S. economy from overheating due to the increase of government expenditure. Coincidentally, a recent article in the Wall Street Journal argued that the Federal Reserve is "taking a big risk"—the loose monetary policy has contributed to the excessive behavior of the financial market, which has made the asset bubble bigger and bigger and created huge risks for the future.

Although the Federal Reserve has no intention to change its policy at present, in consideration of rising inflation, investors still believe that the inflation will erode their corporate profits, and the stock market has fallen first. Meanwhile, the volatility index (VIX) has increased significantly, the yield of U.S. debt have risen sharply, and the U.S. dollar has also rebounded strongly—Judging from these, at least the financial market has responded to inflation. At present, the key should be to observe the causes of inflation in the United States and how it will evolve in the future. If the inflation is temporary, then there will be less risk of tightening monetary policy. But if the inflation continues and remains at a high level, the pace of monetary policy change may be coming.