The United States Federal Reserve Vice Chair, Richard Clarida, has indicated that the nation’s economy is nearly ready for the central bank to pull back on its stimulus even he projected that the high inflation may soon begin to subside.
The Fed had last month signaled it would “soon” be ready to begin the process of ending its massive monthly purchases of bonds and other securities aimed at helping the country weather the Covid-19 devastating impact.
The Fed Vice Chair in a speech delivered at the Institute of International Finance on Tuesday said the world’s largest economy was nearing completion of the “substantial further progress” test the central bank has set to determine when to back off its stimulus policies.
He said: “I myself believe that the ‘substantial further progress’ standard has more than been met with regard to our price-stability mandate and has all but been met with regard to our employment mandate.”
Clarida noted that members of the bank’s policy setting committee last month agreed that unless the economic situation changes dramatically, “a gradual tapering of our asset purchases that concludes around the middle of next year may soon be warranted.”
Similarly, the Fed Vice Chair pointed out that the 2.9 percent annual pace of US inflation as reported by the Commerce Department since February 2020 was well above “what I would consider to be a moderate overshoot” of the bank’s two-percent goal.
“Fully reopening the $20 trillion economy this year is taking longer and costing more than it did to shut it down last year,” he said, but added he believes inflation will edge back towards the Fed’s goal.
“The unwelcome surge in inflation this year, once these relative price adjustments are complete and bottlenecks have unclogged, will in the end prove to be largely transitory,” Clarida projected.
However, Atlanta Federal Reserve Bank President, Raphael Bostic, did not share the view of the Fed Res Vice Chair on the general price level likely trend, warning that higher inflation could persist.
Bostic said: “I think inflation is likely to remain above two percent going forward. How far forward I cannot say. But upside risks are salient.”
Currently, the Federal Reserve is buying $80 billion in Treasury bonds and $40 billion in mortgage-backed securities monthly since last year as the Covid-19 pandemic caused devastating downturn on the economy and other sectors.