Fed, nearing bond-buying ‘taper,’ remains divided on inflation

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October 14 (Businesshala) – Despite the widely shared view that the US labor market has recovered enough to allow the Federal Reserve to reduce its monthly bond purchases as soon as next month, policymakers They are divided on inflation and what they should do about it.

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The US government reported Thursday that producer prices rose 8.6% in the 12 months through September, the biggest year-over-year advance in nearly 11 years. Wednesday’s data showed US consumer prices rose 5.4% over the same period.

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Speaking to a virtual gathering of the Euro 50 group on Thursday, St. Louis Fed Chairman James Bullard described the trend as “concerning”.

“While I think there’s some chance that this will end naturally over the next six months, I wouldn’t say it’s a strong enough case that we can count on that,” Bullard said, adding that he’s putting it around 50. Gives % chance.

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Bullard is pushing for the Fed to start reducing $120 billion in monthly purchases of treasuries and mortgage-backed securities next month, and minutes of the US central bank’s September 21-22 policy meeting show that Policy makers are generally supportive of doing so, with plans to complete the process by mid-2022.

However, Bullard wants to end bond purchases by the first quarter of 2022 to allow the Fed to raise interest rates as soon as spring if inflation remains uncomfortably high.

The Fed has promised it will keep its benchmark overnight lending rate at the current near-zero level until the economy reaches full employment, and inflation has not only reached its 2% target, but some It is on track to remain marginally above that level for the time being.

The central bank set the parameters when inflation had been running below 2% for years, and the challenge was seen as raising it rather than lowering it.

But now, the opposite problem may emerge, as consumer demand fuels a reopening economy and spending businesses, reeling from supply constraints, are struggling to keep up.

In an address to South Dakota State University late Wednesday, Fed Governor Michelle Bowman sounded the alarm over inflation and her concerns that easing monetary policy was helping to feed higher prices as well as a potential asset bubble. Bowman also urged the start of a bond-buying “taper” next month.

But others have a different view of the situation.

San Francisco Fed President Mary Daly, one of the central bank’s top most policymakers, told CNN International on Thursday that inflation is not tied to monetary policy at this time and that strict policy is unlikely to do much to bring it down. Is.

Daly said rising prices will persist “as long as COVID is with us” as they are driven by supply-chain disruptions caused by disruptions related to the pandemic, and inflation will subside once the pandemic subsides.

“It’s premature to start talking about rate hikes,” Daly said, however, the point was reached where “we think we can dial back the level of support that we’re adding to the economy.” Huh.”

Reporting by Ann Safir Editing by Paul Simao

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