Senior Fed official says it may be time to begin tapering debate


A senior Federal Reserve official has called for a debate about tapering the central bank’s asset purchases if the US recovery keeps gathering steam, the latest sign the Fed is edging towards reducing its support for the economy.

Randal Quarles, a Fed vice-chair, on Wednesday said he believed that even after “discounting temporary factors”, the increase in US inflation since December would “prove sufficient” to merit a drawdown in asset purchases later in 2021.

However, the labour market is still lagging, he said in remarks to the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a think-tank.

See also  China's factory activity slows slightly in May as raw materials costs surge - official PMI

“If my expectations about economic growth, employment, and inflation over the coming months are borne out . . . and especially if they come in stronger than I expect . . . it will become important for the [Federal Open Market Committee] to begin discussing our plans to adjust the pace of asset purchases at upcoming meetings,” Quarles said.

“In particular, we may need additional public communications about the conditions that constitute substantial further progress since December toward our broad and inclusive definition of maximum employment,” he added.

Quarles is not the only top official at the Fed to hint at the central bank’s readiness to begin considering a reduction of its monetary policy support should the economy continue to recover. This represents a shift from the central bank’s stance that any discussion of tapering asset purchases was premature.

“There will come a time in upcoming meetings, we’ll be at the point where we can begin to discuss scaling back the pace of asset purchases,” Richard Clarida, also a Fed vice-chair, said in an interview with Yahoo Finance. “It’s going to depend on the flow of data that we get.”

See also  RBI bulletin: 'Demand shock biggest toll of second Covid wave'

San Francisco Fed president Mary Daly has also confirmed the central bank is beginning to broach the topic of tapering. “We’re talking about talking about tapering, and that is what you want out of us,” she said in an interview with CNBC on Tuesday. “You want to be long-viewed here.”

See also  A Scottish company’s battle to seize planes of India’s national airline

Quarles said the discussion about curtailing the massive monetary stimulus put in place by the Fed during the pandemic was a matter of “risk management”.

“The best analysis we currently have is that the rise in inflation to well above our target will be temporary. But those of us on the FOMC are economists and lawyers, not prophets, seers and revelators. We could be wrong, and what happens then?” he said.

“Part of the calculus in balancing the risks of either overshooting or undershooting our 2 per cent goal is that the Fed has the tools to address inflation that runs too high, while it is more difficult to raise inflation that falls below target.”

In a subsequent question and answer session, Quarles added: “If we had changed our monetary policy framework at 6 per cent inflation, that would be a different thing. We have some elbow room to be wrong here.”

The Fed’s favourite inflation gauge, core PCE, currently sits at 1.8 per cent, and as part of its new approach unveiled last August, it has committed to keeping policy ultra accommodative until it achieves a more inclusive recovery.

Even as he stressed the importance of a Fed discussion on limiting asset purchases, Quarles said the central bank needed to be “patient” in the face of temporary rises in prices and wages, as long as inflation expectations were “consistent” with its goals. Any talk of an interest rate increase at the Fed was “far in the future”, he added.

See also  Why central bankers no longer agree how to handle inflation



Source link

See also  Two-time Olympic medallist wrestler Sushil Kumar arrested near Jalandhar

Latest

Arlene Foster: ‘If the union is to succeed, we need to be a bigger tent’

When political party leaders are ousted, some shrug, some cry, some rage against the dying of the light. Arlene Foster descends from her...

3 Common Types of Surveillance Cameras

Having a surveillance camera can help you monitor your home, business, or other property in a variety of ways. In addition to video recordings,...

Covid-19: As Coronavirus second wave spreads to rural areas, Centre releases new SOPs for managing cases in these areas

To patients testing positive and choosing to stay in home isolation, the health authorities would need to provide a home isolation kit.Coronavirus in...

Don’t fear the taper: Fed to dominate treasury market for years

By Liz Capo McCormick and Rich MillerTreasury investors fretting about when the Federal Reserve will scale back its bond purchases may be missing...

Rock on: Germany on track for open air gigs, fans at soccer games

Article content BERLIN — Germany is on target for outdoor concerts this summer, with social distancing and COVID-19 testing for attendees, and if...