Fed's Bostic says bond-buying 'recalibration' could happen in 2021
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[January 05, 2021] By
Howard Schneider
WASHINGTON (Reuters) - The Federal Reserve
could begin to trim its monthly asset purchases this year if
distribution of coronavirus vaccines boosts the economy as expected,
Atlanta Fed President Raphael Bostic said on Monday in what amounted to
a bullish outlook for the coming months.
"I am hopeful that in fairly short order we can start to recalibrate,"
the $120 billion in U.S. Treasury and mortgage-backed securities that
the U.S. central bank is currently buying each month, Bostic said in an
interview with Reuters.
The Fed said in a policy statement last month that it would keep those
purchases in place "until substantial further progress has been made" in
restoring the economy to full employment and lifting inflation towards
the central bank's 2% goal.
Bostic said the coming weeks will "be somewhat difficult" for the
economy with COVID-19 still spreading and any change in Fed policy tied
tightly to a successful vaccine rollout that curbs the pandemic.
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Still, he felt the country could be nearing the moment when those
"post-vaccine" dynamics start to take shape, and warrant debate about
when to scale back the aggressive steps taken in March to nurse the
economy through its worst downturn in a century.
"I am hopeful that moving on into this year that the signals for
weakness start to dissipate and the conversation turns consistently and
robustly to sort of steady and broad-based growth," Bostic said. He
added that he was hopeful also that progress will be enough to let the
Fed bring its asset holdings back to a level "more in line" with what
existed before the pandemic.
"If we determine things have strengthened appreciably, that we have made
significant progress, then we will think about the next appropriate
action."
CRISIS-FIGHTING MEASURES
The Fed's holdings grew rapidly from around $4 trillion to $7 trillion
last year as it ramped up asset purchases to help the economy, and will
continue expanding for now. The purchases initially helped financial
markets through a turbulent few weeks last spring, and are now aimed to
keep long-term interest rates low, a boon to businesses and consumers.
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![](../images/010521PIX/busine45.jpg)
Federal Reserve Bank of Atlanta President Raphael Bostic
participates in a panel discussion at the American Economic
Association/Allied Social Science Association (ASSA) 2019 meeting in
Atlanta, Georgia, U.S., January 4, 2019. REUTERS/Christopher Aluka
Berry/File Photo
![](http://archives.lincolndailynews.com/2021/Jan/05/images/ads/current/christianvillage_lda_LUAL_2020.png)
But Bostic's comments are among the most explicit yet from Fed officials about
how vaccines may accelerate debate over when and how to exit the central bank's
core crisis-fighting measures.
In separate comments, Chicago Fed President Charles Evans also said policymakers
were poised to push bond-buying in either direction - adding more if the economy
seems to need it but also open to cutting back if the recovery and vaccines gain
traction.
Bostic said he is optimistic the better outcome is now more likely, with
additional fiscal help in place following the passage by Congress of a roughly
$900 billion package to extend unemployment insurance and other benefits, and
the vaccine distribution system likely to improve over time.
Bond-buying is only one of the tools the Fed deployed to fight the recession
triggered by the pandemic.
But with the other main tool - the Fed's benchmark overnight lending rate -
likely on hold for years to come, the asset purchase program may now be the key
measure of how the central bank is thinking about the economy and how to shape
policy to it.
After a dramatic year, that may already be changing.
Until the Fed's Dec. 15-16 policy meeting, many market analysts expected the
central bank was on the verge of expanding its asset purchases to more fully
support the economic recovery and try to further lift still-weak inflation.
The Fed, however, held those purchases steady, with news of vaccines offering
some hope the worst had passed, and Fed Chair Jerome Powell emphasizing he felt
the current level of purchases was providing adequate economic support.
(Reporting by Howard Schneider; Additional reporting by Ann Saphir; Editing by
Paul Simao)
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