By Ann Saphir
(Reuters) – US central bankers are broadly in agreement that they may soon begin to scale back their support for the economy, but they are divided on the threat high inflation poses and — more importantly — what they may need to do about it.
Some indication of the intensity of that debate is expected to emerge this Wednesday, when the Federal Reserve releases the minutes of its September 21-22 monetary policy meeting. At that meeting, officials sent their clearest signal yet that the days of crisis-era monetary policy are numbered.
With the economy on track to grow this year at its fastest pace in decades, inflation soaring well above the Fed’s comfort zone, and the job market cured of the ravages of the coronavirus pandemic, most officials believe it’s wise to get started to cut the $120 billion in monthly asset purchases the central bank has been disbursing to spur economic recovery.
Fed Chair Jerome Powell said last month that as long as labor market data were “decent,” he expects the reduction in purchases of Treasuries and mortgage-backed securities to start next month and be completed by mid. next year.
After a government report on Friday showed that 194,000 jobs were created in the US last month, a reading well below the expectations of many economists, Fed Deputy Chair Richard Clarida said on Tuesday that the goal The Fed’s employment policy for the start of the stimulus cut was met, although it did not specifically mention November for the start of the reduction in asset purchases.
Any suggestion in the minutes or elsewhere that the authorities plan to speed up or slow down stimulus reduction based on the pace of economic recovery would mark a departure from the predictable pattern the Fed adopted in 2014 when it reduced bond purchases implemented to nurture the economy back to health after the financial crisis and recession of 2007 to 2009, and it would be a surprise to the markets.
More likely, perhaps, the minutes will provide a fresh look at monetary policymakers’ inflation prospects, and particularly if any of them feel that they will ultimately have to sacrifice their goal of achieving full employment to prevent inflation soars out of control.
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