Inflation makes Fed divided on nearing taper

Despite a broadly shared view that the U.S. labor market has healed enough to allow the Federal Reserve to start tapering as soon as next month, policymakers remain divided over inflation and what they should do about it.

The U.S. government reported on Thursday that producer prices rose 8.6% in the 12 months through September, the biggest year-on-year advance in nearly 11 years.

Data on Wednesday showed U.S. consumer prices rose 5.4%. But data from both reports also suggested COVID-driven price increases may already have peaked, with month-to-month gains slowing.

Speaking to a virtual gathering of the Euro50 Group on Thursday, St. Louis Fed President James Bullard described the inflation trend as “concerning.”

“While I do think there is some probability that this will naturally dissipate over the next six months, I wouldn’t say that’s such a strong case that we can count on that happening,” Bullard said, adding that he gives it about a 50% chance.