US Employment Threshold Has Almost Been Met To Initiate Bond Purchase Reduction, Says Fed’s Clarida

November 22, 2021

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The United States reported that producer prices climbed 8.6% in the 12 months to September, the largest year-on-year advance in nearly 11 years. Data from Wednesday showed that consumer prices in the country soared 5.4% during the same period.

The US government reported Thursday that producer prices climbed 8.6% in the 12 months to September, the biggest year-on-year advance in nearly 11 years. Data from Wednesday showed that consumer prices in the country soared 5.4% during the same period. Speaking at a virtual meeting of the Euro50 Group on Thursday, St. Louis Fed Chairman James Bullard described the trend as “worrisome.”

“While I think there is some chance that it will dissipate naturally in the next six months, I wouldn't say it's such a strong case that we can count on it happening,” said Bullard, adding that he sees a 50% chance. in any sense. Bullard has been pushing for the Fed to start cutting its $ 120 billion monthly purchases of Treasuries and mortgage-backed securities next month, and minutes from the central bank's September meeting showed officials generally support doing so, with plans to conclude the process by mid-2022.

However, Bullard wants to end asset purchases by the first quarter of 2022 and thus allow the Fed to raise interest rates as early as spring if inflation remains uncomfortably high. The Fed has committed to keeping its benchmark interest rate for overnight loans at the current level close to zero until the economy reaches full employment, and inflation has not only reached its 2% target but is on track to stay modestly above that level for some time.

The central bank set those parameters when inflation had been below 2% for years, and the challenge was seen as accelerating it rather than reducing it. But now the opposite problem may be emerging, as stifled consumer demand drives spending in a reopening economy and companies, hampered by supply bottlenecks, struggle to keep up.

In a speech, Wednesday night at South Dakota State University, Fed Governor Michelle Bowman sounded the alarm about inflation and her fears that expansionary monetary policy is helping fuel high prices and possible asset bubbles. He also urged that the so-called “taper” be started in November.

But others have a different view of the situation.

San Francisco Fed Chair Mary Daly, one of the organization's more dovish officials, told CNN International on Thursday that inflation is not tied to monetary policy at this juncture and that a more restrictive stance is unlikely to do the trick. much to slow your progress.

Daly argued that the price hike “is going to last as long as COVID is with us,” because it is driven by supply chain bottlenecks caused by pandemic-related disruptions, and that inflation would decline once that the pandemic did.

“It is premature to start talking about rate hikes,” Daly said, noting, however, that the point had been reached where “we feel we can reduce the level of support that we are adding to the economy.”