THE U.S. Federal Reserve is expected to detail plans today to end its pandemic-era bond purchases by mid-2022 as policymakers shift their focus towards what, if anything, to do about a surge in inflation that is lasting longer than anticipated.

U.S. central bankers, in the minutes of their Sept. 21-22 meeting, signaled that a “taper” of the US$120 billion in monthly asset purchases would be approved at this week’s gathering of the policy-setting Federal Open Market Committee.

What the minutes described as an “illustrative tapering path” would trim the purchases by US$15 billion per month beginning in November or December, a pace and starting point that would end the program by June or July.

Of more note now is how the Fed changes other parts of its policy statement, and particularly its description of inflation as “largely reflecting transitory factors.”

Fed officials still largely hold that view. By some time in 2022, they anticipate that global supply bottlenecks will have eased, pandemic-fueled demand for goods among U.S. consumers will cool after massive spending on cars, motorcycles and appliances, and enough people will be pushing to return to jobs that the pace of wage and benefit increases will also subside.

But in recent weeks Fed officials have acknowledged the risks to that outlook. The jump in inflation this year has already lasted longer than anticipated. Headline rates are running at twice the Fed’s 2 percent target and rising rents, low business inventories, and large numbers of workers still waiting on the sidelines may mean the high pace of price increases will continue for now.

The dilemma facing the U.S. central bank is whether inflation eases before U.S. policymakers feel compelled to step in with interest rate increases to curb it. Investors are acting as if the Fed’s patience will run out soon.

The Fed cut its overnight benchmark federal funds interest rate to the near-zero level last year in a bid to stem the economic fallout of the pandemic. Trading in federal funds futures currently show investors expecting up to three quarter-percentage-point rate increases in 2022. Fed officials as of September were split over whether there would even be one.

“Will they hold on to the transitory description of inflation? My best guess is they will,” in order to keep their commitment to support the economic recovery until the economy is closer to full employment, said Aneta Markowska, an economist at Jefferies.

“If they were being intellectually honest they would probably drop it, but given what is happening in the market the Fed has to tread carefully.”

Push back too hard on the current market expectations, by emphasizing the 5 million U.S. jobs still missing from before the pandemic, and it could “unhinge” the market outlook for inflation, she noted. Lean too hard on inflation risks, and it could push rate hike expectations even higher, begin to restrict credit and borrowing, and slow the recovery.

The Fed will not issue new economic forecasts today. So beyond the statement it will release, it will be up to Fed Chair Jerome Powell in his news conference half an hour later to strike a balance between the two sides of the U.S. central bank’s mandated goals of achieving maximum employment and stable prices. (SD-Agencies)