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The Federal Reserve Board says bond purchases should be curtailed quickly in case a rate hike is needed.

Federal Reserve Bank of St. Louis Governor James Bullard advocated on Tuesday to be proactive as the central bank begins ending its monthly bond-buying program in case inflation becomes a bigger problem.

In an interview with CNBC, Fed officials said policymakers need to be ready, as current inflationary pressures are considered to be 50-50 likely to be temporary. I did.

The Federal Reserve Board of Governors will begin shrinking its asset purchase program at least $ 120 billion per month next month, with a target date of perhaps mid-2022.

Bullard said he wanted to see faster action.

“I would like to support the start of the taper in November,” he said in “Closing Bell.” “I have advocated ending the taper process by the end of the first quarter of next year, because I want to be in a position to cope with the possible upside risks to next year’s inflation in order to get out of this pandemic. .. “

The Federal Reserve Board says it wants to finish tapering before rate hikes begin.

The statement is made on the same day that the International Monetary Fund warned that inflation could last longer than expected. In doing so, the IMF advised the central bank to develop an emergency response plan to strengthen its policies in that case.

Mr Bullard said he is optimistic that the economy will grow strongly this year, despite joining fellow policy makers to mark down the 2021 US economic growth outlook. ..

The Federal Reserve Board emphasized that even if it begins to taper off this year, it should not be seen as a sign of an impending interest rate hike. Officials believe the Fed has fulfilled its inflationary obligation of 2% growth, but said it is still a bit far from the goal of full and comprehensive employment that triggers rate hikes.

“At this point, there’s no reason to commit in any way,” Bullard said. “I just want to be in that position in case I have to move faster so that I can do so next spring or summer.”

Some more hawkish Fed members, who support stricter policies, are questioning the Fed’s story that inflation is temporary. Earlier that day, Federal President Raphael Bostic said he didn’t want workers in his office to use the term, but instead preferred “episodes” to describe the current situation. rice field.

Bullard also casts doubt on the theory that inflation is driven primarily by supply chain problems.

“Supply shock alone cannot cause inflation,” he said. “These two things lead to inflation, as we are responding to supply shocks with very simple monetary policy.”

Still, he said he thinks the US economy is in a good position and doesn’t think he’s seeing 1970s-style stagflation or inflation with negative growth.

“At this point, the chances of a recession are very low,” he said.

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The Federal Reserve Board says bond purchases should be curtailed quickly in case a rate hike is needed.

Source link The Federal Reserve Board says bond purchases should be curtailed quickly in case a rate hike is needed.

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