Fed Worries of Increasing Inflation as It finalized Tapering Plan

Growing supply chain disruptions have increased risks of inflation which have Federal Reserve Officials worried about upcoming plans for reducing bond-buying stimulus.

The latest Fed Meeting minutes which were released on Wednesday highlighted the stronger consensus on reducing the Treasury and mortgage securities worth $120 billion as inflation continues to grow. This could eventually lead to the tightening of monetary policies next year.

Under new plans, the Federal Reserve will cut back purchases of Treasury and mortgage bonds by $15 billion a month, and will begin tapering by the mid of November this year. The new schedule for minimizing the stimulus program is faster that what was expected by investors.

The forecast prepared last month included a revised inflation projection which is higher than previously decided. Economists and bank officials are still insisting that the inflation in transitory and will decline sooner than later. The minutes said, “The staff interpreted recent inflation data as indicating that supply constraints were putting a larger amount of upward pressure on prices than previously anticipated. These supply constraints were also expected to take longer to resolve.”

Raphael Bostic, Atlanta Fed president said that inflation is not transitory and that officials must stop using that word to describe the growing inflation rates in the nation. He further said, “It is becoming increasingly clear that the feature of this episode that has animated price pressure, mainly the intense and widespread supply chain disruptions will not be brief. By this definition, the, the forces are not transitory.”