Fed considers faster phasing out of asset purchase program | Financial

Fed Vice-Chairman Richard Clarida, Banking Governor Christopher Waller and James Bullard of the Fed in St. Louis all said they are thinking of an accelerated tapering. Among other things, reference was made to the ‘very strong position’ of the US economy and the ‘further rise in inflation’.

The faster phasing out of the asset purchase program to support the economy in times of crisis also gives policymakers the opportunity to raise interest rates from almost zero. This may be necessary to prevent the economy from overheating.

Just over two weeks ago, the Fed announced it was phasing out its $120 billion monthly asset purchases. This process should be completed by mid-2022. The minutes of that November policy meeting, where that has been decided, will be made public next week. They may provide more insight into the Fed’s thinking. The impact of inflation is important here.

US consumer prices rose 6.2% in October from a year earlier. More had to be paid in particular for cars, food, petrol, electricity and heating oil. The job market figure was also better than expected. Fed chief Jerome Powell said in early November he did not want to surprise the markets with a policy change.

The discussion about further easing is complicated by the expiry of the terms of a number of Fed executives. Powell’s first term also ends in February. President Joe Biden has yet to decide whether to run for another term for Powell. Lael Brainard is also named as successor. According to experts, a choice for Brainard could mean that the Fed becomes even more cautious about raising interest rates. Biden’s choice is expected next week.

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