With the U.S. economic outlook rife with uncertainty, it is no wonder that Federal Reserve officials are divided about the stance of central bank monetary policy.

Fed officials are facing a hard reality — “economic growth is coming in weaker than forecast, while inflation is coming in hotter,” said Diane Swonk, chief economist at Grant Thornton.

The central bank’s ultra-easy policy stance, in place since the pandemic struck the economy in March 2020, looks untenable. With this spike in inflation this year, the consensus is that it’s time to back away from all the stimulus.

Advertisement But the question of how and when to back away has divided officials.

The Fed has been buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month since last June to keep long-term interest rates low and bolster demand. It said it would maintain the purchases until the economy hit a threshold of “substantial” progress on inflation and the labor market.

Since the summer, the Fed has been talking about slowing down and eventually ending these purchases.

Although not an exact science, roughly half of the Fed’s 18 top officials support tapering “sooner rather than later.” They think the economy has met the threshold of “substantial” progress and is now being bedeviled by supply bottlenecks, something the Fed’s asset purchases can’t solve.
The other half of the Fed leadership have said they would like to see more data on the labor market before the threshold for tapering is met.