U.S. Federal Reserve Chair Signals Faster Pace Of Bond Taper

U.S. Federal Reserve Chairman Jerome Powell said that the central bank could speed up the removal of economic stimulus to boost the economy as inflation persists.

In an appearance before a Senate committee, Powell said he thinks reducing the pace of monthly bond buying can move more quickly than the $15-billion-U.S.-per-month schedule announced in November.

Powell said he expects the issue of speeding up the end of the central bank’s bond buying to be discussed at the Fed’s December meeting.

"At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” he said. “I expect that we will discuss that at our upcoming meeting."

The initial tapering schedule would have seen bond purchases end in June 2022; if the committee chooses to accelerate, that could mean a close earlier in the spring, giving the Federal Reserve leeway to raise interest rates anytime thereafter.

Stocks fell following Powell’s comments, while government bond yields rose. The remarks added worry to a market already skittish over the emergent of the Omicron strain of COVID-19, though early indications are that the variant is milder than previous versions.

The Federal Open Market Committee, which sets monetary policy including interest rates and the Fed’s efforts to boost activity through bond purchases, said following its November meeting that the pace would be cut by $15 billion U.S. a month — $10 billion in Treasuries and $5 billion in mortgage-backed securities.

Powell said the bond buying, which has added $4.5 trillion U.S. to the Fed’s $8.73 trillion U.S. balance sheet, has been "supporting economic activity." However, he said the economy’s progress has taken the urgency out of the program, often referred to as quantitative easing.

He did not indicate by how much the taper would accelerate. Powell has stressed that the tapering should not be seen as an indication that rate increases are looming.

Markets are currently pricing in at least two quarter-percentage point interest rate hikes in 2022 and possibly a third by December of next year, while the September projections from Fed officials pointed to a less aggressive timetable.

Those interest rate projections also will be updated later in December.