Federal Reserve Chairman Jerome Powell said that, in light of high inflation, the central bank might wind down its bond-purchasing program sooner.
Powell, testifying before the Senate Banking Committee alongside Treasury Secretary Janet Yellen, faced questions about inflation, which has been soaring all year. The Fed has insisted that inflation, which is running at 6.2% for the year ending in October, is “transitory” and will tamp down. On Tuesday, though, the chairman said that term might no longer be appropriate.
“I think the word ‘transitory’ has different meanings to different people. To many, it carries a sense of short-lived — we tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation,” Powell told lawmakers. “I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
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The Fed also embarked upon an unprecedented monthly asset purchasing program once the COVID-19 pandemic took hold. After its last meeting, the central bank said that it would begin winding down its massive monthly purchases of $120 billion in Treasury bonds and mortgage-backed securities. Powell suggested on Tuesday that the process could end sooner.
“At this point, the economy is very strong, and inflationary pressures are high,” Powell said. “And it is, therefore, appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner.”
He said that he expects to discuss speeding up the tapering process at the next meeting of the Federal Open Market Committee.
The Dow Jones Industrial Average, which was already down, dropped further after Powell’s statements. The index was down more than 600 points, or about 1.8%, following the chairman’s speculation about tapering.
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Powell, a Republican, was recently renominated by President Joe Biden to serve another term at the head of the central bank. It was reported Tuesday that in a nod to the liberal wing of his party, Biden is considering Richard Cordray to be the Federal Reserve’s top banking regulator.