Three Federal Reserve聽policymakers on Tuesday hinted that the聽central bank has made enough progress to start聽cutting back on its聽monthly bond purchases as early as next month and will start withdrawing the聽extraordinary support it unleashed after the pandemic lockdowns paralyzed the economy.
“Since our December 2020 meeting, the Committee has indicated that it will continue to maintain the pace of Treasury and mortgage-backed securities purchases at $80 billion and $40 billion per month, respectively, until ‘substantial further progress’ has been made toward our maximum-employment and price-stability goals,”聽Fed聽Vice Chair Richard Clarida told the Institute of International Finance virtual annual meeting.
“At our September meeting, the Committee continued to discuss the progress made toward these goals, and I myself believe that the ‘substantial further progress’ standard has more than been met with regard to our price-stability mandate and has all but been met with regard to our employment mandate.”
Clarida noted that if the Fed maintains its “substantial” levels of progress, then a “a moderation in the pace of asset purchases may soon be warranted,” reiterating聽what federal policymakers said in their last meeting.
Noting that while no decisions had been made with regards to the “appropriate” rate at which to begin tapering asset purchases once economic conditions improve,聽Clarita said the Fed generally maintains that, “so long as the recovery聽remains on track, a gradual tapering of our asset purchases that concludes around the middle of next year may soon be warranted.”
Clarida also stated that overall economic activity and conditions in the labor market have continued to improve, with job gains averaging聽550,000 per month over the past three months according to the聽payroll survey. However, he noted that the pandemic and ongoing fears surrounding the virus, “continue to weigh on employment and participation.”
Fed policymakers at their last meeting saw the unemployment rate falling to 4.8 percent by the end of this year, a benchmark it already reached last month.
Both Atlanta聽Fed聽President Raphael Bostic and St. Louis聽Fed聽President James Bullard also said on Tuesday that they endorsed a聽November聽start to begin tapering off assets.
“I think that the progress has been made, and the sooner we get moving on that the better,” Bostic said in an interview with the Financial Pezou.
Meanwhile, Bullard told聽CNBC that he would like to see the tapering process finished by the end of the first quarter next year, and advocated an聽aggressive approach to pulling back on its聽monthly bond purchases.
“I want to be in a position to react to possible upside risks to inflation next year as we try to move out of this pandemic,” he said, noting that he聽thinks there is a a 50-50 chance that the current inflation pressures are transitory.
Federal Reserve and many economists maintain that the recent spike in inflation is “transitory,” and merely reflective of the ongoing effects of supply chain breakdowns during the pandemic and shifts in consumer demand as more activities like travel become safer again.
But some聽experts have begun to express fears that the unusual conditions of the COVID-19 economy and large amounts of government stimulus聽will continue pushing prices higher throughout this year.
Economic historian Niall Ferguson told聽CNBC on Sept. 3 that inflation could be聽repeating the trajectory of the late 1960s.
“How long is transitory? At what point do expectations fundamentally shift, especially if the Federal Reserve is telling people, 鈥榳e have changed our inflation targeting regime and we don鈥檛 mind if inflation goes above target for a while?’” Ferguson said.
“My sense is that we are not heading for the 1970s but we could be re-running the late 1960s, when famously the Fed Chair then, McChesney Martin, lost control of inflation expectations.”
Reuters contributed to this report.
Pezou : 3 Fed Policymakers Throw Support Behind November Taper Timeline