Fed policymakers edge closer to opening debate around taper
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.
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.”
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.
Reference: Reuters
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