The Fed could accelerate the withdrawal of stimulus to the US economy

The president of the United States Federal Reserve (Fed), Jerome Powell, said yesterday that the central bank should consider accelerating the reduction of its bond purchases at its next monetary policy meeting, which will be in two weeks.

In front of legislators from the Senate Banking Committee, the official said that the US economy continues to strengthen and job growth is strengthening.

However, he acknowledged that inflation, now at more than double the Fed’s target of 2% per year, is expected to persist longer than he and other of his colleagues expected.

For months the head of the Fed described the explosive trajectory of inflation as “transitory”, arguing that it was due to interruptions in supply chains, shortages of goods and workers, but today he told the Senate that it is time to “withdraw” that term.

“At this point the economy is very strong and inflationary pressures are high and therefore in my opinion it is appropriate to consider ending the reduction of our asset purchases, which we actually announced at the November meeting, perhaps a few months. before, and I hope we will discuss it at our next meeting in a couple of weeks, “Powell said at the joint hearing with Treasury Secretary Janet Yellen.

The Fed began reducing its support for the economy this month. The program consisted of monthly purchases of $ 120 billion of Treasury bonds and mortgage-backed securities.

The agency announced that it would reduce purchases at a rate of 15,000 million dollars per month, so that the stimuli would end in mid-2022.

The program was introduced in early 2020 to help prop up the economy from the onslaught it suffered during the Covid-19 pandemic.

Several Fed officials have previously expressed their desire that the central bank accelerate its purchase reduction schedule in order to raise interest rates if necessary to control inflation.

Powell’s comments seem to suggest that he’s ready to join those colleagues in favor of faster liquidation of asset purchases.

Omicron risks

The country’s health officials are rushing to determine how transmissible the new variant of Covid, called Ómicron, is and to what extent current vaccines are still effective.

The now-dominant Delta variant of Covid-19 hit the U.S. economy over the summer, slowing employment amid worker fears of contracting the virus and exacerbating supply chain problems.

“It really is about transmissibility, about the ability of vaccines to address any new strains, about the severity of the disease once it is contracted … I have been told by experts that we will know more about those questions in about a month.” Powell said. “However, we will know something in a week to 10 days.”

“Then, and only then, can we make an assessment of what the impact would be on the economy. For now, it is a risk for the baseline scenario, it is not really included in our forecast ”.

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