As inflation surges, Fed to debate faster taper, earlier rate hikes
Send a link to a friend
[November 20, 2021] By
Ann Saphir and Lindsay Dunsmuir
(Reuters) - Federal Reserve policymakers
are publicly debating whether to withdraw support for the U.S. economy
more quickly to deal with surging inflation, with one of the central
bank's most influential officials signaling on Friday that the idea will
be on the table at the Fed's next meeting.
It was just this month that the Fed decided the economy was strong
enough to begin to trim its $120 billion in monthly asset purchases, put
in place earlier in the pandemic to push down on borrowing costs and
boost the recovery. The plan would phase out all bond-buying by
mid-2022.
Since that meeting, the economy has gained speed, with reports showing
more than half a million jobs added in October, retail sales surging,
and consumer inflation notching its biggest annual increase in 31 years.
"I'll be looking closely at the data that we get between now and the
December meeting, and it may well be appropriate at that meeting to have
a discussion about increasing the pace at which we are reducing our
balance sheet," Vice Chair Richard Clarida said at the San Francisco
Fed's 2021 Asia Economic Policy Conference, noting that he and many of
his colleagues see upside risks to already high inflation. "That will be
something to consider at the next meeting.
![](http://archives.lincolndailynews.com/2021/Nov/20/images/ads/current/topflight_sda_SFARM_2020.png)
Earlier Friday, Fed Governor Christopher Waller called for a the Fed to
double up on its wind-down of bond purchases, finishing it by April to
make way for a possible interest-rate hike in the second quarter of next
year.
"The rapid improvement in the labor market and the deteriorating
inflation data have pushed me towards favoring a faster pace of tapering
and a more rapid removal of accommodation in 2022," Waller said at the
Center for Financial Stability in New York.
Waller and St. Louis Fed President James Bullard, who earlier this week
called for the Fed to end its bond purchases by March, have been at the
forefront of policymakers pushing for an accelerated timeline for
tightening.
[to top of second column] |
![](../images/112021pics/busine1.jpg)
The Federal Reserve building is pictured in Washington, D.C., U.S.,
August 22, 2018. REUTERS/Chris Wattie
![](http://archives.lincolndailynews.com/2021/Nov/20/images/ads/current/chicagost_sda_FFARM_2021.png)
"All shocks tend to be transitory and fade away. By this logic the Fed
should never respond to any shocks, but sometimes it does, as it
should... appropriate monetary policy responds to these inflation
movements," Waller said.
Clarida's suggestion Friday that a quicker taper could be discussed at
the Fed's next policy meeting suggests the idea is gaining traction
within the Fed.
After his remarks, interest-rate futures trading reflected rising bets
that the Fed will begin to raise rates by June and lift them twice more
by the end of the year.
There is still no consensus within the Fed to quicken the taper. San
Francisco Fed President Mary Daly earlier this week urged her colleagues
to remain patient. Supply-chain disruptions are the main culprit behind
higher inflation, she argued, and as those get worked out, inflation
will recede; raising rates now would only slow progress in the job
market and hurt millions of Americans.
Chicago Fed President Charles Evans on Thursday also said he believes
the Fed should stick to its taper plan. But even he, among the Fed's
most dovish policymakers, acknowledged he is "more open-minded" to
raising interest rates next year than he was six months ago.
Separately, Atlanta Federal Reserve President Raphael Bostic said
Thursday he believes the U.S. central bank could start raising interest
rates by the middle of next year, based on his outlook that the economy
will be back to full employment by then [L1N2S92XA]
The tension over Fed policy comes as President Joe Biden nears a
decision on whether to keep Jerome Powell as Fed chair for another term,
or to elevate Governor Lael Brainard to the position. A decision is
expected by Thanksgiving.
The Fed's next meeting is December 14-15.
(Reporting by Ann Saphir, Editing by Nick Zieminski)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |