Lindsay (NYSE) Dunsmuir, and Ann Saphir

(Reuters) – The U.S. Federal Reserve is close to meeting its goal of reducing its bond purchasing program and has achieved its employment goal, Fed Vice Chairman Richard Clarida stated on Tuesday. This confirms expectations that the central bank will begin withdrawing crisis-era stimuli as early as next month.

Clarida, who was addressing the Institute of International Finance’s virtual annual meeting in prepared remarks said that Clarida believes the standard of’substantial more progress’ has exceeded our price stability mandate. Clarida also stated that Fed officials had agreed to taper “may soon” at their last meeting.

Clarida’s positive assessment is likely to echo the feelings of Fed Chair Jerome Powell who previously stated that all he needed was a “decent September U.S. Jobs report” to start to taper bond purchases in November.

The Labor Department released the September jobs report last Friday. While it was below analyst expectations, upward revisions to previous months have shown that the economy has now recovered half of the unemployment rate. This is after the Fed placed a “substantial further advance” threshold on inflation and jobs in December to start tapering. Fed policymakers have almost unanimously agreed that the threshold for higher-than-expected inflation is met.

Fed policymakers saw unemployment falling to 4.8% at the year’s end, which was a mark it had already achieved last month.

Clarida noted that while the economy has improved and “conditions within the labor market have continued their improvement”, he said the pandemic is still a significant threat to employment and participation.

Before the release of the data on jobs, Fed policymakers were divided between those who saw this year’s gains in excess and began to reduce the asset purchasing program. November 2-3 is the Fed’s next policy gathering.

Clarida also reiterated that the Fed believes tapering should begin once the recession has ended. This will probably happen in the middle to the middle of next fiscal year.

In an effort to keep borrowing costs down, the Fed is buying $120 million of Treasuries every month. But it’s increasingly emphasizing that the benefits of bond purchases have outweighed their utility in today’s environment.

American economic output is already higher than before the pandemic. Americans currently have $2.5 trillion worth of savings, which was accumulated in response to it. Consumption remains high. While bond purchases most directly impact demand, economies around the world are facing shortages of labor and goods.

The surge in U.S. demand after the economy’s opening has led to a rise in inflation. But, there are persistent supply problems that will keep prices from rising above the Fed’s 2 % average inflation target through the end-of-2019 and well into 2022.

If the Fed does not see inflation subsiding next year as many Fed policymakers, including Clarida, expect it to, then the central bank may have to increase interest rates to near zero to ensure that the labor market has fully recovered. Clarida admitted that “the risks to inflation” are positive, but he downplayed any notion that the Fed would have to choose between the two mandates. He said his inflation expectations remain stable.