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WASHINGTON (AP) – A prominent Democratic senator, expressing concern about inflation, is urging the Federal Reserve to start cutting back on monthly bond purchases.
In a letter to Fed Chairman Jerome Powell, West Virginia Senator Joe Manchin said he has become “increasingly alarmed” that the Fed continues to buy $ 120 billion by months of Treasury bonds and mortgage-backed securities, even with the onset of the recession. by the COVID pandemic over and “our strong recovery well underway”.
While a number of Republicans have criticized the Fed for failing to start cutting monthly bond purchases even as signs of inflationary pressures mount, Manchin is the first Democrat to issue similar criticisms.
In his letter to Powell dated Thursday, Manchin said he urged the Fed “to immediately reassess our country’s monetary policy stance and start scaling back your emergency stimulus response.”
At the last Fed meeting on July 27 and 28, central bank officials first signaled that the economy was approaching the “substantial further progress” officials want to see before they start cutting their bond purchases.
The reduction in bond purchases would signal the start of the Fed’s pullback in support of the economy. The Fed said cuts in bond purchases would be followed later by the start of increases in the Fed’s benchmark policy rate, which has remained at a record zero to 0.25% since the start of the pandemic. in March 2020.
Many economists believe the reduction in bond purchases will not begin until the end of this year or early 2022.
Fed Vice Chairman Richard Clarida said in a speech on Wednesday that he believed the accelerating economic recovery could allow the central bank to start considering raising interest rates by the start. 2023.
Clarida said that according to her economic forecast for inflation and jobs, “starting policy normalization in 2023” would be in line with the Fed’s policy goals.
Manchin’s letter was sent ahead of the release of Friday’s Strong Jobs report showing that the country created 943,000 jobs in July and that the unemployment rate fell to 5.4%.
Diane Swonk, chief economist at Grant Thornton, said Manchin’s letter showed how sensitive politicians were to increases in inflation, especially in key areas such as gasoline and food prices.
“Inflation is political because it affects people immediately on the ground,” she said. “You cannot escape this.”
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