Fed’s Clarida Affirms Fed Plans to End Bond Purchases by Mid-2022

“A gradual tapering of our asset purchases that concludes around the middle of next year may soon be warranted,” he said in remarks delivered virtually at a conference on Tuesday.

With the economy shutting down, the Fed cut its short-term benchmark rate to near zero when the coronavirus pandemic hit the U.S. in March 2020. It has been purchasing at least $120 billion a month in Treasury and mortgage bonds since June 2020 to provide additional stimulus.

Mr. Clarida’s remarks signaled the central bank is likely to announce plans to gradually shrink those purchases after its two-day meeting starting Nov. 2.

Rising vaccination rates and nearly $2.8 trillion in federal spending approved since December have produced a recovery like none in recent memory. Inflation has soared this year, with so-called core prices that exclude volatile food and energy categories up 3.6% in August from a year earlier, using the Fed’s preferred gauge. The gains largely reflect disrupted supply chains and shortages associated with the reopening of the economy.

Since February 2020, when the pandemic upended global commerce, inflation has been rising at a 2.9% annual rate in the U.S., which Mr. Clarida said is “well above what I would consider to be a moderate overshoot” of the Fed’s 2% goal.

Mr. Clarida said he still expects that the underlying rate of inflation in the U.S. economy “is hovering close to” that goal, “and, thus, that the unwelcome surge in inflation this year, once these…bottlenecks have unclogged, will in the end prove to be largely transitory.”

But he added that he and most of his colleagues believe the risks are tilted toward inflation running at higher-than-anticipated levels. If the Fed sees evidence that households and businesses are beginning to expect higher inflation, that would fuel concerns about more-persistent price increases that would call for rate rises, Mr. Clarida said.

“Monetary policy would react to that,” he said. “But that is not the case at present.”

Projections released at the end of the Fed’s two-day policy meeting last month showed half of 18 officials expect to raise interest rates by the end of 2022. In June, just seven officials anticipated that, with most instead penciling in rate increases in 2023. The projections showed several officials expected somewhat higher inflation next year than they had in June and nearly all penciled in more rate increases in 2023.

During a question-and-answer session, Mr. Clarida said he didn’t expect the U.S. to face a run of so-called stagflation, in which growth is weak but inflation is high. But he conceded that recent figures on third-quarter economic activity have “a flavor of that right now” due to supply-chain disruptions. “I don’t think that’s going to be the trend going forward, but it is certainly something policy makers need to be alert and attuned to,” he said.

Mr. Clarida said that he has also been surprised by recent labor market data that show relatively restrained hiring amid record job openings and a falling unemployment rate, which indicates fewer people may be seeking work. The more contagious Delta variant of the coronavirus may have held back job searching in the most contact-intensive sectors this summer, Mr. Clarida said.

Write to Nick Timiraos at nick.timiraos@wsj.com