WASHINGTON–The Federal Reserve may seek to withdraw its bond-buying program earlier than planned due to high inflation pressures, but it will factor in risks from the new Omicron variant of the coronavirus before making a decision, Fed Chairman Jerome Powell told the Senate Banking Committee.
Powell indicated the Fed will also likely move to raise rates at some point 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,” Powell said in his statement. “And I expect that we will discuss that at our upcoming meeting in a couple of weeks. Of course, between now and then, we will see another labor market report, another inflation report, and we’ll also get a better sense of the new Covid variant as well before that — before we make that decision…As I pointed out in my testimony, for now, it’s a risk. It’s not — it’s a risk to the baseline. It’s not really baked into our forecast.
Powell acknowledged the central bank has been growing more concerned about high inflation and could speed up its plan to withdraw financial support from the economy as it tries to ensure that rapid price gains do not become long-lasting.
Inflation Drives Rethinking
The central bank had been buying $120 billion in government-backed securities each month throughout much of the pandemic to bolster the economy by keeping money flowing in financial markets. As CUToday.info reported, in November the Fed announced plans to slow those purchases by $15 billion a month, which would have the program ending midway through 2022. Now Powell is saying it may move even more quickly.
“At this point, the economy is very strong, and inflationary pressures are high,” he told the Senate committee. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner.”
The Federal Reserve is next scheduled to meet Dec. 14-15.