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Powell weighs earlier end to bond tapering amid hot inflation

Craig Torres, Matthew Boesler and Christopher Condon, Bloomberg News on

Published in Business News

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Federal Reserve Chair Jerome Powell said officials should weigh removing pandemic support at a faster pace and he retired the word “transitory” to describe stubbornly high inflation, though a new Covid-19 strain remains a risk.

His comments Tuesday before the Senate Banking Committee, where both Democrats and Republicans expressed concerns about high prices, were taken as a hawkish pivot by financial markets that could deliver sooner-than-expected increases 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,” said Powell, selected last week by President Joe Biden for another four year term as Fed chief. “In those two weeks we are going to get more data and learn more about the new variant.”

The U.S. central bank is currently scheduled to complete its asset-purchase program in mid-2022 under a plan announced at the start of November to slow buying by $15 billion a month. The next gathering of the policy-setting Federal Open Market Committee is Dec. 14-15, where they could make a decision to accelerate the tapering.

Stocks fell and the U.S. Treasury yield curve flattened as investors digested the remarks. Fed officials have consistently said they want to wrap up the taper before increasing borrowing costs from near zero, where they’ve been since the onset of the pandemic in March 2020. Traders boosted bets on how quickly the Fed will raise rates on the back of Powell’s comments.

 

“It now looks like it will take a deterioration in the public health situation over the next two weeks to prevent the FOMC from deciding to quicken the pace of tapering at the next meeting,” JPMorgan Chase & Co. chief U.S. economist Michael Feroli wrote in a note to clients titled “Turbo Tapering on Agenda for Dec. FOMC.”

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.

Policy makers including 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.

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