Fed policymakers edge closer to opening debate around taper
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[May 26, 2021] By
Ann Saphir and Howard Schneider
WASHINGTON (Reuters) -Federal Reserve
policymakers have begun to acknowledge they are closer to debating when
to pull back some of their crisis support for the U.S. economy, even as
they say it is still needed to bolster the recovery and employment.
"We are talking about talking about tapering," San Francisco Federal
Reserve Bank President Mary Daly told CNBC on Tuesday, referring to the
potential reduction of the Fed's $120 billion in monthly asset
purchases. Those bond buys, together with near-zero interest rates, are
aimed at easing borrowing costs and encouraging hiring and investment.
"I want to make sure that everyone knows that it's not about doing
anything now," Daly added. She noted that while she is "bullish" about
the fall, the economy is still more than 8 million jobs short of where
it was before the pandemic, which is still not over. "Right now, policy
is in a very good place....we need to be patient."
Earlier Tuesday, Vice Chair Richard Clarida also opened the door to
talking about the Fed doing less - at some point. "It may well
be...there will come a time in upcoming meetings we will be at the point
where we can begin to discuss scaling back the pace of asset purchases,"
Clarida said on Yahoo Finance. "That was not the focus of the April
meeting. It is going to depend on the flow of data."
This suggestion that talking about tapering could become appropriate is
a shift from just a month ago when Chair Jerome Powell said it was "not
yet" time to even contemplate having that conversation.
Fed policymakers have promised to give markets plenty of notice before
changing policy, to avoid a repeat of the "taper tantrum" spike in bond
yields after former Fed Chair Ben Bernanke surprised markets by flagging
a reduction to the Fed's bond-buying in 2013.
Since their April meeting, two regional Federal Reserve bank presidents
have publicly urged that the discussion begin soon, and others have
highlighted the risks should a current round of price increases become a
more embedded cycle of inflation.
[to top of second column] |
Federal Reserve Vice Chair Richard Clarida reacts as he holds his
phone during the three-day "Challenges for Monetary Policy"
conference in Jackson Hole, Wyoming, U.S., August 23, 2019.
REUTERS/Jonathan Crosby/File Photo
The Fed has promised it won't raise rates until the economy is back to full
employment and it sees inflation reach 2% and poised to rise above that level.
That stance worries some analysts who believe the Fed has become too relaxed
about inflation and is setting the stage for a painful round of abrupt,
inflation-fighting interest rate increases that could also push the economy back
into recession.
Most Fed policymakers have stuck to the view that the recent rise in inflation
will prove transitory, given its origins in supply and labor market bottlenecks
that will in time get worked out.
But not all are completely convinced. Speaking late Monday, Kansas City Fed
President Esther George noted the "tremendous" amount of fiscal stimulus that
has been pumped into the economy and said she is "not inclined to dismiss
today's pricing signals or to be overly reliant on historical relationships and
dynamics in judging the outlook for inflation."
Clarida on Tuesday said he believes that the Fed will be able to curb any
outbreak of inflation with tough talk and more modest rate hikes that would
allow economic growth to continue.
The Fed will get new inflation data on Friday, with forecasters expecting that
prices for personal consumption goods excluding food and energy rose at a 2.9%
annual rate in April. That would be the highest reading since June 1993 and
beyond the Fed's 2% inflation target.
The Fed meets next on June 15-16.
(Reporting by Howard Schneider and Ann Saphir; Editing by Cynthia Osterman)
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