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Chorus of Fed policymakers tease faster taper amid inflationary pressures

Federal Reserve officials on Thursday again signaled that they would likely move to more quickly draw down the central bank’s pandemic-era policy of aggressively buying bonds and other securities.

The reason: rising inflationary pressures that Fed policymakers are no longer describing as “transitory.”

“I do take seriously actual inflation and its impact,” Richmond Fed President Tom Barkin said at a Peterson Institute for International Economics event Thursday. “That’s why I’m supportive of normalizing policy as we do it.”

Normalizing refers, in part, to interest rate hikes — which many Fed watchers expect to happen in 2022. But before the Fed can start to raise rates from the current levels of near-zero, the policy-setting Federal Open Market Committee will likely want to first end its asset purchases.

Under the so-called quantitative easing program, the Fed was purchasing about $120 billion a month in agency mortgage-backed securities and U.S. Treasury bonds. In early November, the FOMC said it would begin slowing — or tapering — those purchases by about $15 billion per month. At that pace, the quantitative easing program would come to a full stop by the middle of next year.

The central bank’s top official, Fed Chair Jerome Powell, told Congress this week that a discussion to speed up that process would likely happen at the next FOMC meeting in two weeks.

Wave of Fedspeak

San Francisco Fed President Mary Daly, who first told Yahoo Finance on Nov. 23 that she could support a faster taper, said on Thursday that she could still support a taper to position the Fed for eventual rate hikes.

“Not to take accommodation away completely, but to start lessening the accommodation we’re providing when the economy is looking to be self-sustaining,” said Daly at the Peterson event.

Meanwhile, Atlanta Fed President Raphael Bostic told Reuters on Thursday that he would like to end the program “sooner than later.” Looking beyond, Bostic added that if the data point to more elevated readings of inflation, “it may be appropriate for us to pull forward a liftoff.”

In October, prices soared 6.2% year-over-year, the fastest annual rise seen in the Consumer Price Index since 1990. The Bureau of Labor Statistics will release data covering the month of November on Dec. 10.

Fed Governor Randal Quarles said Thursday that he feels the inflationary dynamics at play appear to show the impact of higher underlying demand, a departure from recent interpretations that have blamed faster price increases on COVID-related supply chain bottlenecks.

“We should respond more quickly to constrain that demand,” Quarles said, hinting at a sharper pullback in the Fed’s easy money policies.

Quarles recently said he would be leaving the Fed at the end of the month, meaning his participation in the Dec. 14 and Dec. 15 FOMC meeting will be the last of his tenure.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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