Fed’s Clarida Affirms Fed Plans to End Bond Purchases by Mid-2022

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The central bank’s No 2 official said he expects the recent “undesirable jump” in inflation to be “largely temporary”.

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With the economy shut down, the Fed lowered its short-term benchmark rate to near zero when the US was hit by the coronavirus pandemic in March 2020. It has been buying at least $120 billion a month in Treasury and mortgage bonds since June 2020 to provide additional. Incentive.

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Mr Clarida’s remarks indicate that the central bank may announce plans to gradually reduce those purchases at its two-day meeting beginning on November 2.

Rising vaccination rates and nearly $2.8 trillion in federal spending approved since December have not produced any recovery in recent memory. Inflation has soared this year, with so-called core prices, which leave the volatile food and energy categories up to 3.6% in August from a year ago, using the Fed’s preferred gauge. The gains largely reflect disrupted supply chains and shortfalls associated with reopening the economy.

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Mr Clarida said he still expects the underlying rate of inflation in the US economy to be “closer to our long-run objective of 2% and, thus, the unwanted jump in inflation this year, once it … prove to be largely transitory.”

But he said he and most of his colleagues believe the risks are skewed towards inflation, operating at higher-than-expected levels. If the Fed sees evidence that households and businesses are anticipating higher inflation, it will fuel concerns about continued price increases that will call for rate hikes, Clarida said.

“Monetary policy will react to that,” he said. “But at present it is not so.”

Projections released at the end of the Fed’s two-day policy meeting last month showed that half of 18 officials expected interest rates to rise by the end of 2022. In June, only seven officials projected that, with the penciling in instead of a rate increase in 2023. Projections showed that many officials expected slightly higher inflation than in June next year and almost all expected more rate hikes in 2023.

The recent surge in coronavirus cases related to the more permeable delta variant has further clouded the outlook in recent months by potentially intensifying the challenges of slower growth and higher inflation.

write to Nick Timiros and [email protected]

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