Will the US inflation rate justify a quicker taper from the Fed?

Federal Reserve chair Jay Powell said in testimony before the Senate on Tuesday last week that he no longer viewed inflation as “transitory”, and signalled openness to accelerating the pace of the central bank’s unwinding of crisis-era monetary policy.

November’s consumer price index data, due to be published on Friday, will give the Fed evidence of how quickly inflation is progressing and whether a faster withdrawal of its monthly purchases of government bonds would be warranted. That debate is expected to happen at the central bank’s next policymaking committee meeting on December 14-15. 

“The November CPI update holds greater potential as an immediate influence on the path of Fed action although, at the end of the day, expectations hold that the inflation figures will only serve as further justification to wind down QE [quantitative easing] more quickly,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.