Federal Reserve Chair, Jerome Powell, sounded a note of heightened concern over persistently high inflation as he emphasized that the central bank would begin tapering its bond purchases shortly while remaining patient on raising interest rates. 

The risks are now longer and more persistent bottlenecks, leading to higher inflation, he said on Friday during a virtual panel discussion hosted by the South African Reserve Bank.

Powell and his colleagues on the policy-setting Federal Open Market Committee are expected to announce that they will begin winding down the bond-buying program put in place last year in the early days of the pandemic, at their November policy meeting.

Currently, the Fed is acquiring $120 billion of Treasuries and mortgage-backed securities each month. The coming reduction in the pace of purchases will mark the central bank’s first step toward the exit from the monetary support measures, rolled out in 2020, to shield the economy from the effects of the coronavirus.

The Fed chair was speaking on the final day before monetary policymakers entered a media blackout period ahead of the FOMC’s upcoming meeting. Fed-watchers homed in on his characterization of growing inflation risks at the end of a week when measures of inflation compensation in financial markets rose to multi-decade highs.

Powell sounded less anxious about employment but more anxious about inflation. Investors increasingly expect Fed officials to begin raising their benchmark interest rate, which is currently just above zero, the middle of next year. 

The timeline for expected rate hikes has been pulled forward in money markets in recent weeks amid unfavorable news of inflation. This is running well above the central bank’s 2% target amid global supply-chain disruptions that are boosting prices for a wide range of goods and services.

The Fed chair said the risk is that the current elevated rates of inflation will begin to lead price- and wage-setters to expect unduly high rates of inflation in the future, which could ultimately force the Fed to respond. However, he added that it is still the most likely case that inflation would subside as supply-chain constraints ease.

After his speech, Gold advanced for a fifth day as risks around higher-for-longer inflation bolstered the case for buying the metal. Meanwhile, Treasury Secretary, Janet Yellen, said on Sunday she expects price hikes to remain high through the first half of 2022 and ease in the second half but rejects criticisms that the US risks losing control of inflation.

Bullion has rallied this month as traders attempt to gauge how central banks will address the rising price pressures, which have been stoked by supply-chain bottlenecks and higher energy costs. There are also growing risks to the outlook for China, where the Delta virus outbreak is expected to worsen in the coming days and the economy faces headwinds from a property-sector slowdown. 

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