Powell Says Fed Could Finish Bond-Buying Taper Early

The Federal Reserve could pull back economic support faster as inflation lasts, and its chair signaled that for now the Omicron variant is a “risk.”

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Jerome Powell signals the Fed’s bond-buying program could end sooner as inflation persists.

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The Federal Reserve chair, Jerome H. Powell, and Treasury Secretary Janet Yellen testify before the Senate Banking Committee at a time when prices are rising at the fastest pace in three decades.CreditCredit…Sarahbeth Maney/The New York Times

Nov. 30, 2021Updated 11:49 a.m. ET

Jerome H. Powell, the Federal Reserve chair, signaled that the central bank is growing more wary of high — and stubborn — inflation, and that it could speed up its plan to withdraw economic support as soon as its meeting in December as it tries to make sure that rapid price gains do not last.

The Fed had been buying $120 billion in government-backed securities each month for much of the pandemic to bolster the economy by keeping money flowing in financial markets. In November, officials announced plans to slow those purchases by $15 billion per month. That would have ended the program midway through 2022. But Mr. Powell signaled on Tuesday that the process could speed up, cutting down on how much juice the Fed will add to demand in upcoming months.

“At this point, the economy is very strong, and inflationary pressures are high,” Mr. Powell said during a hearing before the Senate Banking Committee. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner.”

Mr. Powell said that the Fed will discuss slowing bond purchase faster “at our upcoming meeting in a couple of weeks” — stressing that between now and then, the Fed will get a better sense of the new Omicron variant of the coronavirus, a fresh labor market report and a new reading on consumer price inflation.

The Fed’s next two-day policy meeting will take place Dec. 14-15.

Mr. Powell made it clear that it was too soon for Fed policymakers — or anyone — to tell how big the new variant’s impact will be, since that will hinge on how easily it transmits and whether it causes more severe disease.

“What I’m told by experts is that we’ll know quite a bit about those answers in about a month,” he said. “We’ll know something, though, within a week or ten days.”

For now, he said, “it’s a risk, it’s a risk to the baseline — it’s not really baked into our forecasts.”

The challenge that Omicron might pose hits at a complicated moment for policymakers. The economy has boomed back this year, and hot demand has collided with choked supply chains to push inflation sharply higher. The central bank has been working toward removing its economic help as price gains remain stubbornly high, reorienting its policy so that it can raise rates next year if that is necessary to keep rising costs in check as inflation proves more stubborn than officials had hoped.

“Generally, the higher prices we’re seeing are related to the supply and demand imbalances that can be traced directly back to the pandemic and the reopening of the economy, but it’s also the case that price increases have spread much more broadly in the recent few months,” Mr. Powell said Tuesday. “I think the risk of higher inflation has increased.”

If the new variant continues to roil supply chains even as it keeps workers at home and prevents a full labor market recovery, it could put the Fed in a tough spot. Central bank policymakers are supposed to foster both full employment and keep prices stable.

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