The governor of the Federal Reserve Bank of St. Louis, James Brad, advocated on Tuesday that the central bank should take aggressive measures when it begins to gradually reduce the monthly bond purchase program to prevent inflation from becoming a bigger problem.
The Fed official said in an interview with CNBC that he believes that the current inflationary pressure is temporary, with a possibility of 50-50, so policymakers must be prepared.
The Federal Reserve is expected to announce next month that it will begin to reduce its monthly asset purchase plan of at least US$120 billion, and the target date may be in the middle of 2022.
Brad said he would like to see faster action.
“I support the start of production cuts in November,” he said in “Closing Bell.” “I have always advocated the completion of the reduction process before the end of the first quarter of next year, because I hope to be able to respond to the possible upside risks of inflation next year, because we are trying to get rid of this epidemic.”
Fed officials said they are more willing to complete the cut before interest rate hikes begin.
On the same day that the above remarks were made, the International Monetary Fund warned that inflation may last longer than expected. In the process, the International Monetary Fund recommended that central banks formulate contingency plans to tighten policies in this case.
Brad said that although he and other policymakers have lowered the outlook for US economic growth in 2021, he is optimistic about strong economic growth from this year to next.
The Fed emphasized that even if it starts to scale down this year, it should not be seen as a sign of imminent interest rate hikes. Officials said they believe that the Fed has achieved its 2% inflation target, but it is still some distance from its goal of sufficient and inclusive employment that triggers interest rate hikes.
“At this point, we have no reason to make promises in one way or another,” Brad said. “I just want to be in a position, just in case we have to move as soon as possible. If we have to, we can move next spring or summer.”
Some of the more hawkish Fed members—those who support tightening policies—have questioned the Fed’s view that inflation is temporary. Earlier in the day, Atlanta Fed President Raphael Bostic stated that he didn’t even want employees in his office to use the term, but would rather use “incidental” to describe the current situation.
Brad also expressed doubts about the theory that inflation is mainly caused by supply chain problems.
“Supply shock alone will not lead to inflation,” he said. “Adapting to supply shocks through a very loose monetary policy, it is these two things that have caused inflation.”
However, he said that he believes that the US economy is in good condition and does not think it will have 1970s-style stagflation or negative growth inflation.
“The probability of a recession is very low at the moment,” he said.
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