U.S. Senator Joe Manchin urges Fed to reduce asset purchases to minimize inflation risks

7:05 pm Thursday, August 05th, 2021

By Jonnelle Marte

(Reuters) – U.S. Senator Joe Manchin urged the Federal Reserve to start withdrawing some of its economic support in a letter to Fed Chair Jerome Powell in which the moderate Democratic lawmaker from West Virginia said he is worried easy monetary policy may fuel higher inflation.

“With the recession over and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy by continuing an emergency level of quantitative easing,” wrote Manchin.

Fed officials lowered short-term interest rates to near zero levels last year and began purchasing $120 billion in a month in government bonds to stabilize markets and support the economy after it was disrupted by the coronavirus pandemic.

Policymakers are in the process of discussing how to reduce those purchases, and Fed Vice Chair Richard Clarida said on Wednesday that it is possible Fed officials could announce a reduction in the pace of purchases later this year.

A spokeswoman for the Fed confirmed that the central bank received the letter but declined to comment further.

Manchin credited swift action from Fed and robust relief packages passed by Congress with helping to bolster the economy through the deep but brief recession last year. But he said he was also worried additional fiscal stimulus could “lead to our economy overheating and to unavoidable inflation taxes that hard working Americans cannot afford.”

The $1.9 trillion relief plan passed earlier this year was criticized by Republicans and some Democrats, including former Treasury secretary Lawrence Summers, who said they were worried it could set off inflationary pressures.

Senators are currently considering a $1 trillion bipartisan infrastructure bill and some Democrats are in favor of another $3.5 trillion proposal.

Lawmakers do not determine monetary policy but the Senate will have to confirm President Joe Biden’s nominee for leading the central bank. The White House needs to decide if it will keep Powell on after term as chair expires in February of 2022.

(Reporting by Jonnelle Marte; Editing by Sandra Maler)