Fed (Federal Reserve) President Jerome Powell said on Tuesday (30) that the US central bank will likely discuss accelerating the reduction of its bond purchases at its next monetary policy meeting, amid the force the economy and expectations that high inflation will persist until the middle of next year.
“At this point the economy is very strong and inflationary pressures are high and therefore it is appropriate, in my view, to consider ending the reduction in our asset purchases — which we actually announced at the November meeting — perhaps a few months earlier, and I hope to discuss that at our next meeting in two weeks’ time,” Powell said in an audience with the US Senate Banking Committee.
The Fed began scaling back its support for the economy this month and is currently in the process of fully ending its $120 billion (R$674.3 billion) in monthly purchases of Treasuries and mortgage-backed securities by June of next year. The program was introduced in early 2020 to help protect the economy during the Covid-19 pandemic.
Several Fed officials had already called for the central bank to accelerate the pace of stimulus cuts to end it sometime in the spring (in the Northern Hemisphere), in order to allow for an earlier start of interest rate hikes in the US, if so necessary to control inflation.
Powell’s observations seem to suggest that he is ready to join these colleagues in favor of a faster reduction in asset purchases.
His speech comes amid turmoil in financial markets over the emergence of a new variant of the coronavirus, which could be resistant to vaccines. In recent days, this news has led markets to postpone their expectations until the time of the start of interest rate hikes by the US central bank.
But Powell’s comments about the potentially faster pace of stimulus reduction and that inflation should no longer be considered a “transitory” phenomenon reversed some of those bets, boosting bond yields.
The Federal Open Market Committee (Fomc), responsible for defining monetary policy, will hold its next meeting on December 14 and 15.
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