Video source: YouTube, The Hill
By Lindsay Dunsmuir
Federal Reserve Chair Jerome Powell on Tuesday said the U.S. central bank likely will discuss speeding up its "taper" of large-scale bond purchases at its next policy meeting, amid a strong economy and expectations that a surge in inflation will persist into the middle of next year.
"At this point the economy is very strong and inflationary pressures are high and it is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner, and I expect that we will discuss that at our upcoming meeting in a couple of weeks," Powell said in testimony before the U.S. Senate Banking Committee.
The Fed began to reduce its support for the economy this month, and is currently on track to fully taper its $120 billion in monthly purchases of Treasuries and mortgage-backed securities by next June. The program was introduced in early 2020 to help nurse the economy through the COVID-19 pandemic.
A number of Fed officials had previously advocated that the central bank accelerate that pace to finish it sometime in the spring to allow for an earlier start of interest rate increases should they be needed to rein in inflation.
Powell's remarks appear to suggest he is ready to join those colleagues in favoring a quicker wind-down of asset purchases, and were made as financial markets continued to be roiled by the emergence of a new variant of the coronavirus that may evade vaccinations. That news prompted markets connected to Fed policy expectations to push back the perceived timeline for the start of rate hikes.
But Powell's comments about a potentially faster taper pace and that inflation should no longer be considered to be a "transitory" phenomenon reversed some of that momentum and drove bond yields higher.
The policy-setting Federal Open Market Committee will hold its next two-day policy meeting on Dec. 14-15.
Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Richard Pullin and Paul Simao.