Fed’s bullard says bond purchases should be cut quickly in case rate hikes are needed

Chairman of the Federal Reserve of Saint-Louis James bullard pleaded Tuesday for the central bank to be aggressive as it begins to scale back its monthly bond buying schedule in case inflation becomes a bigger issue.

In an interview with CNBC, the Fed official said he believes there is a 50-50 chance that current inflationary pressures are transient, so policymakers need to be prepared.

The Fed is widely expected to announce next month, it will start cutting its asset purchase program by at least $ 120 billion per month, with a target date likely to be mid-2022.

Bullard said he would like to see faster action.

“I would support the start of the cone in November,” he said on “Closing bell. “” I advocated trying to end the downsizing process by the end of the first quarter of next year because I want to be able to respond to potential upside risks to the inflation next year as we try to get out of this pandemic. “

Fed officials have said they would prefer the cut to be completed before the rate hikes start.

Remarks arrive the same day as the International Monetary Fund has warned that inflation might persist longer than expected. In doing so, the IMF advised central banks to draw up contingency plans to tighten their policy if this were the case.

Bullard said he was optimistic about strong growth in the economy this year, although he joined his fellow policymakers in marking their prospects for economic growth in the United States in 2021.

The Fed stressed that even if it starts to decline this year, this should not be taken as a sign of impending interest rate hikes. Officials said they believe the Fed has fulfilled its mandate of 2% growth inflation, but is still far enough away from its goal of inclusive full employment that would trigger a rate hike.

“There’s no reason for us to engage in any way at this point,” Bullard said. “I just want to be able in case we have to move earlier than we can do it next year in the spring or in the summer if we have to.”

Some of the more hawkish members of the Fed – those in favor of a stricter policy – have raised questions about the Fed’s story that inflation is transitory. Earlier today, Atlanta Fed Chairman Raphael Bostic said he didn’t even want his office workers to use the term, preferring instead “episodic” to describe current conditions.

Bullard also cast doubts on the theory that rising inflation is primarily caused by supply chain issues.

“A supply shock alone cannot cause inflation,” he said. “A supply shock being accommodated by a very accommodating monetary policy, it is these two things that lead to inflation.”

Still, he said he thinks the US economy is in a good position and doesn’t think it is seeing 1970s-style stagflation, or inflation with negative growth.

“The likelihood of a recession is exceptionally low at this point,” he said.

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