Democratic senator urges Fed to begin trimming bond buys

A prominent Democratic senator, saying he is concerned about inflation, is urging the Federal Reserve to start trimming its monthly bond purchases

Federal Reserve Manchin
Federal Reserve Manchin

A prominent Democratic senator, saying he is concerned about inflation, is urging the Federal Reserve to start trimming its monthly bond purchases.

In a letter to Fed Chairman Jerome Powell Sen. Joe Manchin said that he had become “increasingly alarmed” that the Fed has continued to buy $120 billion per month in Treasury bonds and mortgage-backed securities, even with the recession triggered by the COVID pandemic over and “our strong recovery well underway.”

While a number of Republicans have criticized the Fed for not beginning to taper the monthly bond purchases even as signs of inflation pressures mount, Manchin is the first Democrat to raise similar criticism.

In his letter to Powell dated Thursday, Manchin said he was urging the Fed “to immediately reassess our nation’s stance of monetary policy and begin to taper your emergency stimulus response.”

At the Fed’s last meeting on July 27-28, central bank officials signaled for the first time that the economy was moving closer to the “substantial further progress” officials want to see before they begin trimming their bond purchases.

Reduction in the bond buying would signal the start of the Fed’s pullback in support for the economy. The Fed has said that reductions in bond buying would be followed later by the start of increases in the Fed’s benchmark policy rate, which has remained at a record low of zero to 0.25% since the start of the pandemic in March 2020.

Many economists believe the reduction in bond purchases will not start until late this year or early in 2022.

Fed Vice Chairman Richard Clarida said in a speech Wednesday that he believe the economy’s accelerating recovery could allow the central bank to begin considering raising interest rates by early 2023.

Clarida said that under his economic forecast for inflation and employment, “commencing policy normalization in 2023” would be consistent with the Fed’s policy goals.

Manchin’s letter was sent before the release of Friday’s strong jobs report showing the country created 943,000 jobs in July and the unemployment rate fell to 5.4%.

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