US Fed could speed up pace of tapering as inflation surges: official

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WASHINGTON - The US Federal Reserve could speed up the pace of tapering asset purchases as US inflation surged to a 30-year high, a senior Fed official said on Tuesday.

Photo taken on Sept 22, 2021 shows the US Federal Reserve in Washington, D.C., the United States. [Photo/Xinhua]

"I think it behooves the committee to go in a more hawkish direction in the next couple of meetings so that we are managing the risk of inflation appropriately," Federal Reserve Bank of St. Louis President James Bullard said in an interview with Bloomberg Television, referring to the Fed's policy-making committee.

"We could move faster -- we kept optionality on this that we could speed up the taper if it is appropriate," Bullard said, adding that he had proposed to end asset purchases at the end of the first quarter next year.

"That would give us a little bit earlier moment that we could assess where the data is and decide what to do on rate policy," he said.

The Fed has pledged to keep the federal funds rate unchanged at the record-low level of near zero since the start of the pandemic.

"Another consideration I would put on the table, and have put on the table, is we can allow runoff of the balance sheet at the end of the taper instead of waiting on that decision for a while," Bullard said, noting that would be a way to have a "somewhat more hawkish" policy.

Bullard's comments came after the US Labor Department reported last week that the consumer price index (CPI) rose 6.2 percent in October from a year earlier, the strongest annual gain in over 30 years.

The Fed announced in early November that the central bank will begin reducing the monthly pace of its net asset purchases by $10 billion for US Treasury securities and $5 billion for agency mortgage-backed securities.

"If the economy evolves broadly as expected, we judge that similar reductions in the pace of net asset purchases will likely be appropriate each month, implying that increases in our securities holdings would cease by the middle of next year," Fed Chair Jerome Powell said at a press conference earlier this month.

"That said, we are prepared to adjust the pace of purchases if warranted by changes in the economic outlook," Powell said.

Some Fed officials emphasized that the central bank should be patient in assessing the tapering. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Monday that the central bank should not overreact to inflationary pressures that are likely to prove temporary.

"If we overreact by saying, 'Let's just change the path of monetary policy to try to deal with a one-time effect,' that could lead to a worse long-term outcome for the economy," Kashkari told Bloomberg Television.