The Federal Reserve may need to consider accelerating the reduction of its bond-buying program amid strong economic growth and rising inflation, two members of the central bank’s board of directors said on Friday.
“I will look closely at the data we get between now and the December meeting” from policy makers, Fed Vice Chairman Richard Clarida said. “It may well be appropriate at that meeting to have a discussion about how to increase the rate at which we are reducing” our asset purchases.
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His comments came shortly after comments from Fed Governor Christopher Waller that the US central bank might have to speed up the liquidation of its asset purchases and shift interest rates from near zero to the in light of rising inflation.
The Federal Open Market Committee announced earlier this month that it would begin decelerating its monthly asset purchases by $ 120 billion at a rate that would see it finalize the process by mid-2022. But the option was left to alter the pace. tuning in response to changing economic conditions. The FOMC will meet on December 14-15.
Key parts of the Treasury yield curve flattened to the tightest levels of the day after comments from Clarida and Waller.
Clarida told a San Francisco Federal Reserve Bank conference that the US economy is in a “very strong position.”
“There is an upside risk for inflation,” Clarida said.
Consumer prices soared 6.2% in October compared to the previous year, led by cars, food, gasoline, electricity and fuel oil. The personal consumption expenditure price index, the Fed’s favorite inflation gauge, rose at a 4.4% year-on-year rate in September, the most since 1991 and well above the central bank’s 2% target. .
Waller said in New York at an event sponsored by the Center for Financial Stability that the rapid improvement in the labor market and deteriorating inflation data “have pushed me to favor a faster rate of reduction and a more rapid elimination of accommodation in 2022 “.
“I think the policy may need to shift to a more rapid reduction based on the incoming data that I will be monitoring,” he added.
Waller’s comments were echoed earlier in the week by St. Louis Fed Chairman James Bullard. Waller worked with Bullard at the St. Louis Federal Reserve before joining the central bank’s board in December 2020 to cover an unexpired period ending in January 2030.
Other Fed officials have been in no rush to accelerate the reduction. Richmond Fed Chairman Thomas Barkin said Monday that the central bank can be “patient” in evaluating the reduction and “it is very helpful for us to have a few more months to evaluate.” Minneapolis Fed Chairman Neel Kashkari said Monday: “We should not overreact to what is likely to be a temporary factor.”
Waller is an appointee of former President Donald Trump and one of the few governors who will remain when the board changes, with four of the seven seats up for grabs. Randal Quarles, the vice president of supervision, has said he will leave the Fed at the end of the year and that Clarida’s term as a board member expires at the end of January.
The challenge of tightening monetary policy amid high inflation and a still incomplete job recovery will be key for whoever President Joe Biden names as the next Fed chief.
The president is considering President Jerome Powell for another four-year term when the current one expires in February. Biden also interviewed Fed Governor Lael Brainard for the top job. There is also an empty seat to fill on the board.
The White House will have more to report on the vacancies “early next week,” press secretary Jen Psaki said at a briefing on Friday.
© 2021 Bloomberg