The head of the Fed branch in Atlanta also commented on the current inflation trend.
(Photo: Reuters)
Washington Leading US central bankers believe that the time has come to turn away from the ultra-loose monetary policy in the US, despite the disappointing data on the labor market recently. Sufficient growth has been achieved in the job market to enable currency watchdogs to reduce monthly bond purchases from November, said the head of the Fed branch in Atlanta, Raphael Bostic, the “Financial Times” on Tuesday. “I think progress has been made, and the sooner we go, the better.”
Fed Vice President Richard Clarida, who is accused of unfair trading, made a similar statement. The possible tapering promised by Fed chairman Jerome Powell in September could soon be justified and will probably be finished by the middle of next year, Clarida said, according to a speech at an event organized by the Institute of International Finance. The substantial progress desired by Powell in terms of price stability and labor market data has been achieved.
The Federal Reserve (Fed) is currently buying bonds with a volume of 120 billion dollars on the market every month. Powell had signaled at the latest central bank meeting in September that the volume would be reduced if further progress was made on unemployment and price stability. A “proper” labor market report in September would be sufficient for him.
However, according to the latest government data, only 194,000 new jobs were created in the past month. Economists had expected an increase of 500,000. In August, more people in the US had quit their jobs than ever before, as the JOLTS report, which is based on an employer survey, showed.
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According to the report, there are currently more than ten million job vacancies in the economy. “The shortage of labor exacerbates delivery problems and inflation continues,” said economist Christopher Rupkey from research house Fwdbonds in New York.
Ongoing discussion about persistence of inflation
Clarida said the US economy has recovered and labor market conditions have continued to improve. However, he admitted that the corona pandemic will continue to have a negative impact on employment.
With regard to the price increases, his colleague Bostic said that many of the current drivers of inflation are due to the pandemic and are flattening out on their own. The current material shortages could, however, put strain on the economy longer than initially expected.
“So far, indicators do not suggest that long-term inflation expectations are dangerous,” said Bostic at a Peterson Institute event. However, he will no longer describe inflationary pressure as “temporary” in the future. Inflation is likely to be above the Fed’s target of two percent in the future.
More: The specter of stagflation – How economists assess risk