Fed Director Advocates Accelerating Tapering in US

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Director of the Federal Reserve (Fed, the US central bank), Christopher Waller this Friday defended the acceleration of the “tapering”, as it is the process of finalizing the asset purchase program. For him, the largest economy on the planet continues to grow and generate jobs at a fast pace.

“The rapid improvement in the labor market and the deterioration of inflation data led me to favor a faster pace of tapering and a faster removal of accommodation in 2022”, argued Waller, at an event at the Center for Financial Stability, in Nova York.

The official added that the US is rapidly returning to full employment, despite uncertainties on the supply side. According to him, economic activity slowed down in the third quarter due to the delta variant of the coronavirus, but should resume “robust” expansion in the last three months of 2021 and in the first half of next year.

Waller also said that he remains “optimistic” that the recovery will remain “strong”, but he recognized the risks that bottlenecks in the production chain would contain gains in the labor market and in production. “Inflation could complicate the monetary policy management of the FOMC Federal Open Market Committee in 2022”, he admitted.

Inflation

The Federal Reserve director criticized the speech that the recent rise in inflation in the United States is temporary and that, therefore, the monetary authority should not respond to the movement. “I find this argument complicated,” he said.

The official explained that all economic shocks tend to be transitory and that the most important thing is to assess the magnitude of these events. In his view, inflationary pressures in the country have become more widespread and lasting than previously predicted by economists. “I believe these pressures are related to both supply constraints, which may be starting to improve, and strong demand, which shows no signs of abating,” he said.

Waller added that surveys show average inflation expectations above 4%, with bond investors demanding a 3% premium as compensation. “It’s very worrying to me that households and markets are no longer expecting us to keep inflation close to our 2% target over the next three to five years,” he said.

The director also commented that he “would be very concerned” if families started demanding higher wages to offset expected inflation, which could raise prices in the short term and keep them high for some time. “This possibility is a risk for the inflation scenario that I am carefully observing”, he pointed out.

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