The faster pullback puts Fed Chair Jerome Powell in position to raise rates earlier than previously expected to counter price pressures if necessary, even as the pandemic poses an ongoing challenge to the economic recovery. The Fed flagged concerns over the new omicron strain, saying that “risks to the economic outlook remain, including from new variants of the virus.”
The abrupt change in the taper pace reflects “inflation developments and the further improvement in the labor market,” the policy-setting Federal Open Market Committee said in a statement following a two-day meeting. The Fed reiterated that it “is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” the FOMC said. Powell, whom President Joe Biden recently renominated to a second four-year term at the helm of the central bank, has faced increasing pressure from both Democrats and Republicans to take more aggressive action on inflation.