By Jonnelle Marte, Howard Schneider and Ann Saphir

(Reuters] – Just as the ink dried on November’s Federal Reserve policy decision to start reducing its bond purchases, Chair Jerome Powell decided they would need to go even further against inflation.

This marked the end of volatile weeks that saw inflation go from an academic risk – Powell spoke extensively on it at Fed’s Jackson Hole symposium. – into a direct threat to the economy. It sent Powell, Fed chair, charting the Fed’s next move.

Some policymakers, such as James Bullard of the St. Louis Fed president, had been calling for a more rapid “taper” that would allow room for an early rate rise if required. However, their voice was not enough and Fed policymakers were prepping the market and the public that the $120bn monthly bond purchase to bring to zero would continue until mid-2022.

(Graphic: Wage and benefit costs Wage and benefit costs, https://graphics.reuters.com/USA-FED/INFLATION/zdvxorebnpx/chart.png)

Powell was able to see that Powell’s pace may be slow just days before the Fed’s November meeting. The Labor Department had reported that labor costs for the third quarter were at their highest point since 2004.

Powell stated that he thought about increasing the taper for a second, however he decided to continue with the “socialized” pace.

On Nov. 3, the Fed declared that it will begin to reduce its purchase of Treasury securities by $10 Billion monthly, and that of mortgage-backed security by $5 Billion starting in November. A tapering rate which, if maintained would have concluded the program by June.

(Graphic: Labor market progress, https://graphics.reuters.com/USA-FED/POWELL-PIVOT/byvrjqdjdve/chart.png)

A second jolt was delivered two days following the meeting. Employment gains for October were significantly higher than originally expected. In fact, the Labor Department reported nearly one quarter of a million additional jobs created over the past two months.

Powell was unable to keep his cool when the inflation data from the following week showed that inflation had risen at an unprecedented rate in the past three decades. The Consumer Price Index also revealed that inflation is now growing rapidly and expanding more broadly, making it impossible for Powell to call it “transitory.”

He stated, “It was at that point that I really felt that it was necessary to speed up the taper.”

(Graphic: The COVID inflation surge The COVID inflation surge, https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png)

Powell then moved to create consensus among policymakers to double the taper pace in order to end asset purchases by March. This decision was unanimously approved at this week’s meeting. Officials have more freedom to hike interest rates next years if necessary to address higher inflation. This is something they won’t do until after having stopped purchasing bonds.

Powell stated that Powell was right about the fact that there had been a rise in inflation, as well as faster progress on the labor market.

Powell indicated that the Fed will be working to reduce inflation to achieve maximum employment. This could also allow for an extension of its expansion.

Powell stated, “That is what it would take to return to the type of labor market we want to see.” Powell said, “And that’s what it would take to get back to the kind of labor market that we want to see,” and that price stability is necessary to ensure this happens.