At least three Federal Reserve officials said Monday they were ready to withdraw their economic support measures despite seeing no threat from inflation.
In separate discussions, Fed Governor Lael Brainard and Regional Presidents John Williams of New York and Charles Evans of Chicago all expressed confidence about the first phase of monetary tightening – a gradual retreat from the monthly bond purchases that have supported markets and the economy.
“I think it is clear that we have made significant further progress towards our inflation target. There has also been very good progress towards maximum employment,” Williams told the Economic Club of New York. “Assuming the economy continues to improve, as I expect, moderation in asset purchases may soon be warranted.”
However, they stressed that what is known as tapering is not sending a signal of impending rate hikes.
“The Forward Guidance on Maximum Employment and Average Inflation sets a much higher bar for lifting the policy rate than it is for slowing the pace of asset purchases,” Brainard told the National Association for Business Economics. “I want to stress that any decision to announce a slowdown in asset purchases should not be taken as a signal as to when to start.”
The positions were largely in line with a statement released after the Fed’s Open Market Committee meeting last week. Officials agreed that “the tapering may soon be warranted,” with chairman Jerome Powell saying after the meeting that he plans to end the bond purchase program of at least $ 120 billion per month by mid-2022.
This step towards tightening is taking place despite the fact that the Committee does not believe that current inflationary pressures, which have reached their highest levels in decades, will persist.
Evans also said he thinks the Fed should shoot its inflation target higher than the traditional 2% target. Instead, he said that inflation should be targeted “above but near 2%”.
“I think the FOMC’s own actions and communications play an important role in curbing long-term inflation expectations,” he told the National Association for Business Economics on Monday. “Overall, I am concerned that we will not generate enough inflation in 2023 and 2024 as the possibility that we will live with too much.”
Williams said he anticipates inflation to “continue to rise above 2% for another year or so” as “pandemic-induced fluctuations in supply and demand gradually decline”. However, he said inflation should fall below the target at some point during the year.
In their quarterly economic outlook, FOMC members say they see core inflation, which excludes food and energy prices, at 3.7% this year, before hitting 2.3% in 2022 and 2.2% respectively 2.1% will decrease over the next two years. Officials also figured with pencil potentially one rate hike in 2022, followed by three each in 2023 and 2024.
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