Former and Current Fed Directors Say "US Inflation Risk... Tapering Speed Should Be Increased"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Amid growing concerns about inflation in the United States, voices both inside and outside the Federal Reserve (Fed) are calling for an acceleration of the tapering (reduction of asset purchases) pace.

Bloomberg News reported on the 15th (local time) that former and current Fed officials, including William Dudley, former President of the New York Federal Reserve Bank, and former Treasury Secretary Lawrence Summers, have issued warnings in unison regarding the Fed's tapering plans.

Earlier, on the 3rd, the Fed announced that it would reduce asset purchases by $15 billion (approximately 17.7 trillion KRW) per month starting this month, signaling the start of monetary policy normalization.

This marked the gradual end of the 'era of easy money,' as the quantitative easing measures that had resumed in March last year in response to the COVID-19 pandemic were set to be slowly scaled back.

The main reasons cited were the faster-than-expected recovery of the U.S. economy and the inflationary pressures emerging during this process.

However, shortly after the Fed's announcement, indicators such as the October Consumer Price Index (CPI) further fueled inflation concerns. As a result, there are voices suggesting that the Fed may need to speed up the tightening of monetary policy.

William Dudley, former President of the New York Fed, said on Bloomberg TV that day, "The Fed needs to increase the pace of tapering," adding, "Tapering should be completed more quickly."

However, Dudley also noted that since the Fed is trying to avoid a 'tightening tantrum' (the shock financial markets experience when quantitative easing shifts to tightening), stepping on the accelerator for tapering could "be problematic" as it might cause market instability.

James Bullard, President of the St. Louis Fed, expressed a similar view.

In an interview with Fox Business last week, he said, "If necessary, we could complete tapering somewhat earlier," adding, "We have tried hard to move policy in a more hawkish direction. We need to follow the data, but we can move more."

Jeffrey Lacker, former President of the Richmond Fed, harshly criticized the Fed, saying it is "on the path to a policy mistake," and argued that "the Fed should speed up tapering and start raising interest rates early next year or in the first half of the year."

Former Treasury Secretary Summers also warned on Twitter, stating, "The Fed should send signals that major risk factors are overheating and accelerate the pace of tapering," and cautioned that "in a situation where housing prices are soaring rapidly, purchases linked to mortgage-backed securities should be immediately halted."

This content was produced with the assistance of AI translation services.