Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Analysis: The three data reports that persuaded Powell to speed up Fed's taper

Economy Dec 16, 2021 06:36AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell testifies during a Senate Banking, Housing and Urban Affairs Committee hearing at the Hart Senate Office Building in Washington, DC, U.S., September 28, 2021. Kevin Dietsch/Pool via REUTERS/File Photo

By Jonnelle Marte, Howard Schneider and Ann Saphir

(Reuters) - The ink had barely dried on the Federal Reserve's November policy decision to begin reducing bond purchases when Chair Jerome Powell became persuaded they'd need to push even harder against inflation.

It was the culmination of a volatile few weeks in which inflation went from an academic threat - Powell offered a lengthy discourse on it at the Fed's Jackson Hole symposium - to a clear danger to the economy and sent the Fed chair charting out the central bank's next move.

Leading up to the November meeting, a few policymakers - St. Louis Fed President James Bullard among them - had been pressing for a faster "taper" to make room for an earlier rate hike if needed. But their voices hadn't carried the day, and Fed policymakers had for weeks been prepping markets and the public to expect the exercise of bringing its bond purchases from $120 billion a month to zero would extend into mid-2022.

(Graphic: Wage and benefit costs Wage and benefit costs, https://graphics.reuters.com/USA-FED/INFLATION/zdvxorebnpx/chart.png)

Just days before the Fed's November meeting, however, when the plan was to be announced, Powell got his first inkling that the pace might be too slow: The Labor Department reported labor costs in the third quarter had shot up by the most since 2004.

"I thought for a second there whether we should increase our taper," Powell said at a press conference on Wednesday, but decided to go ahead with the pace that had been "socialized."

The Fed announced at the end of the meeting on Nov. 3 that it would begin reducing its purchases of Treasury securities by $10 billion monthly and of mortgage-backed securities by $5 billion starting in mid-November, a tapering rate that if sustained would have wrapped up the program by June.

(Graphic: Labor market progress, https://graphics.reuters.com/USA-FED/POWELL-PIVOT/byvrjqdjdve/chart.png)

Another jolt came just two days after the meeting when employment gains for October came in much higher than expected, and the Labor Department said nearly a quarter million more jobs had been created in the prior two months than initially thought.

It was the next week's inflation data, though, that carried Powell fully over the line: The Consumer Price Index showed inflation surging at a rate not seen in three decades and growing increasingly broadbased, data that made it untenable to continue characterizing it as "transitory."

"I honestly at that point really decided that I thought we needed to look at speeding up the taper and we went to work on that," he said.

(Graphic: The COVID inflation surge The COVID inflation surge, https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png)

From there, Powell moved to build consensus among policymakers that they should double the taper pace to conclude asset purchases by March - a decision approved unanimously at this week's meeting. That gives officials more leeway to raise interest rates next year if needed to tackle the higher inflation, a step they would not want to take until after they've stopped purchasing bonds.

"It was essentially higher inflation and, and faster - turns out much faster - progress in the labor market," Powell said.

Taming higher inflation will also help to remove one of the biggest "threats" to the Fed's goal of achieving maximum employment because it could allow for a potentially longer expansion, Powell said.

"That's what it would really take to get back to the kind of labor market that we'd like to see," Powell said. "And to have that happen, we need to make sure that we maintain price stability."

Analysis: The three data reports that persuaded Powell to speed up Fed's taper
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Ernie Keebler
Ernie Keebler Dec 16, 2021 6:40AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Powell and his cohorts have probably increased their personal stash enough by buying bonds magically right before they announced that the fed would start buying them (to save the economy of course).  The early exit of several of their members proved that their personal greed was showing up as maybe even too outrageous for the kind of rich power players they are.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email