Fed policymakers to debate a faster end to bond-buying

(Reuters) – Federal Reserve policymakers are publicly airing the possibility they could pull back their support for the economy more quickly than they had signaled just weeks ago, with one top official urging a quicker wind-down of bond purchases and another signaling he’d want that discussion at the Fed’s next meeting.

FILE PHOTO: The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. REUTERS/Chris Wattie

“I’ll be looking closely at the data that we get between now and the December meeting, and it may well be appropriate at that meeting to have a discussion about increasing the pace at which we are reducing our balance sheet,” Vice Chair Richard Clarida said at the San Francisco Fed’s 2021 Asia Economic Policy Conference.

Earlier this month, the Fed began to trim its $120 billion in monthly asset purchases at a rate that would end them entirely by mid-2022, and said that if economic conditions warranted, it would be prepared to adjust that pace.

“That will be something to consider at the next meeting,” Clarida said, noting the upside risk to already high inflation and that the economy is “in a very strong position.”

Earlier Friday Fed Governor Christopher Waller called the Fed to speed up its reduction in bond purchases to give more leeway to raise interest rates from their near zero level as soon as the second quarter of next year, if high inflation and the strength of job gains persists.

“The rapid improvement in the labor market and the deteriorating inflation data have pushed me towards favoring a faster pace of tapering and a more rapid removal of accommodation in 2022,” Waller said at the Center for Financial Stability in New York.

Fielding questions after the speech, he argued in favor of the Fed doubling the pace of the taper in January in order to be done by April.

An inflation rate at a 30-year high and a quickening pace of job gains has given almost all Fed policymakers pause, with Waller and St. Louis Fed President James Bullard previously most vocal in pushing for an accelerated timeline. Clarida’s suggesting Friday that such a plan could be discussed at the Fed’s next policy meeting raises the likelihood it could be put in train.

The tension comes as President Joe Biden nears a decision on whether to keep Jerome Powell as Fed chair for another term, or to elevate Governor Lael Brainard to the position. A decision is expected by Thanksgiving.

Waller’s earlier comment on favoring an outright reduction of the Fed’s balance sheet helped lift the yield on the 2-year Treasury note, the maturity most sensitive to Fed policy expectations, from the day’s low, and Clarida’s later comment on eyeing a possible acceleration of the taper at next month’s meeting sent them to the day’s high.

Interest-rate futures trading reflecting rising bets that the Fed will begin to raise rates by June.

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