Shifting policy views amid unexpected economic data have opened the door for the Federal Reserve to announce in September a decision to taper its assets purchases and begin the reduction in buying a month or so after.
Interviews with officials along with their public comments show growing support for a faster taper timeline than markets had expected a month ago. Those changing views follow the strong jobs data of the past two months along with higher inflation readings.
The Fed could yet delay the decision to the November meeting if the August jobs data is weak, the delta variant sparks a new round of economic lockdowns or inflation readings ease off. But stronger-than-expected inflation data this past week and forecasts that it could remain high into next year have bolstered support for the earlier taper announcement.
Markets have also shifted expectations, giving the Fed leeway to act sooner. Respondents to the CNBC Fed Survey in July pegged November as the announcement month and January as the beginning of the taper. But a Reuters poll last week found September to be the new consensus.
Fed Chair Jerome Powell has generally been more dovish than some members of his committee have become, though he has not spoken since the recent data came out. Powell has offered some hints that he could be persuaded to go earlier. While he has insisted that the bulk of inflation would be temporary, he also said, "We have to take seriously the risk case, which is that inflation will be more persistent."
Inflation readings this past week showed some moderation in consumer prices, but growing inflation pressures at the wholesale level. Some Fed officials now forecast higher inflation could persist into next year.
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