When the seagulls have their feet, it's time to turn!

While Jerome Powell had long hesitated, during the year 2021, to take the step of monetary tightening, arguing of transitory inflation and a job market still recovering, the publication of the latest minutes of the FOMC shows that the hawkish turn taken by the Fed at its last meeting could ultimately be much tighter than expected. The majority of members of the American institution indeed consider that inflationary pressures should now persist throughout 2022 and that the appearance of the new Omicron variant is another catalyst for rising prices, especially on the labor market. On this last point, the epidemic has profoundly changed the US labor market, in particular the participation rate, which is struggling to recover, and which raises questions about the definition of full employment by the Fed. Moreover, the new wave of contamination underway will only accentuate the labor shortage and therefore the pressure on wages. However, more than the rise in inflation itself, FOMC members are paying special attention to inflation expectations that could set durably above the central bank's long-term target.

As a result, the FOMC minutes underscore, in addition to accelerating tapering, the will of a majority of FOMC members to accelerate and advance key rate hikes. The first rate hike could thus take place as early as March. But it is above all the debates on a possible reduction in the central bank's balance sheet that mark a real shift compared to the latest statements by Jerome Powell. This mentioned reduction in the Fed's balance sheet was part of the sharp rise in US long rates last week. Almost all participants indeed found it appropriate to begin reducing the balance sheet soon after the first rate hike, which had taken almost two years in the last phase of normalization.

The publication of US employment figures last Friday also confirmed certain fears among members of the FOMC, giving credence to the thesis of monetary tightening much earlier in 2022. Because, if job creations have once again disappointed (199k against 450K expected), the unemployment rate fell back below 4% (3.9% against 4.2% in November) against a background of low participation rate (61.9% against 63.4% pre-crisis) thus highlighting the persistent tensions in the labor market. Consequently, the increase in wages continues with a further increase of 0.6% over the month, or 4.7% over one year.

If, for the moment, the ECB still seems far from these considerations, the publication of an inflation estimated at 5% for the month of December in the euro zone has prompted two of its members (Philip Lane and Isabel Schnabel) to recall that, if the hypothesis of a fall in inflation remains the central scenario, this scenario depends in part on exogenous, and therefore uncertain, factors (geopolitical risk on the price of gas for example)...