US Federal Reserve Chair Jerome Powell on Tuesday said that officials should weigh removing COVID-19 pandemic support at a faster pace and he retired the word “transitory” to describe stubbornly high inflation, although a new COVID-19 strain remains a risk.
His comments before the US Senate Committee on Banking, where both Democrats and Republicans expressed concerns about high prices, were taken as a hawkish pivot by financial markets that could deliver a sooner-than-expected increase in interest rates next year.
“It is appropriate, I think, for us to discuss at our next meeting, which is in a couple of weeks, whether it will be appropriate to wrap up our purchases a few months earlier,” Powell said in response to a question about the central bank’s bond buying.
Photo: EPA-EFE
“In those two weeks we are going to get more data and learn more about the new variant,” he added.
The Fed is scheduled to complete its asset-purchase program in the middle of next year under a plan announced at the start of last month.
The next gathering of the policy-setting Federal Open Market Committee (FOMC) is on Dec. 14 and Dec. 15, where it could make a decision to accelerate the tapering.
Powell’s comments mark a rare moment of pre-positioning by a Fed chair, which signifies he probably already has broad support on the FOMC to cut back asset purchases.
Policymakers, including Fed Governor Christopher Waller, and Fed presidents Mary Daly of San Francisco and Raphael Bostic of Atlanta, have all said they would consider a faster pace of tapering if economic data remained strong.
The bipartisan support during the hearing for more forceful action on inflation also gave Powell political backing to speed up the taper prior to a vote on his second term as Fed chair.
The comments also mark an unusual pivot in his tenure — after the FOMC set the current pace of tapering less than six weeks ago.
This suggests rising uncertainty inside the Fed about the “transitory” nature of current prices increases.
Indeed, Powell said “it’s a good time to retire that word.”
“Most forecasters, including at the Fed, continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate,” he said.
“It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year,” he added.
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