US Federal Reserve divided over when to dial back economic support

Jay Powell, the chair of the Federal Reserve, is facing a growing rift among top officials at the US central bank over when to start withdrawing the huge injection of monetary stimulus that was deployed at the onset of the pandemic.

At the start of the Covid-19 crisis, central bankers were united on the need to stave off economic meltdown by keeping interest rates at rock bottom lows while also buying $120bn of assets each month. But with the US economy rebounding after pandemic-era restrictions were lifted — leading to a sharp burst of inflation — the debate over when to start scaling back the bond-buying programme has intensified.

The conversation on when to taper the asset purchases — a precursor to eventual interest rate rises — kicked off last month and is expected to escalate at the Federal Open Market Committee meeting on Tuesday and Wednesday.

Powell must find a middle ground between central bankers who are pushing for an earlier, more aggressive retreat and those who are wary of a rapid shift in policy. If the Fed chooses a more cautious approach, asset tapering may not occur until early 2022; but if it feels the need to act with greater urgency, it could move in the autumn.

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