The Fed is in early stages of a campaign to prepare markets for tapering its asset purchases
The Federal Reserve is in the early stages of a campaign to ready markets for reducing its $120 billion in monthly asset purchases to stimulate the economy.
Comments by Fed officials in the past several weeks suggest the issue of tapering looks likely to be discussed as soon as the Federal Open Markets Committee meeting next week, and the Fed may be on track to begin asset reductions later this year or early next year.
At least five Fed officials have publicly commented on the likelihood of those discussions in recent weeks, including Patrick Harker, president of the of the Federal Reserve Bank of Philadelphia, Robert Kaplan of Dallas, Fed Vice Chair for bank supervision Randal Quarles and Cleveland Fed President Loretta Mester, whose comments to CNBC came after Friday’s monthly jobs report.
While the discussion may take place, an announcement of a decision to actually taper would be several months later, perhaps in late summer or early fall. That announcement would then put the beginning of the asset reduction further out, perhaps by year-end or early next year. Since the Fed will taper its purchases, that is, reduce the amount it buys by some amount each month, that timeline would still see the Fed purchasing billions of dollars of assets well into 2022, though at an increasingly slower pace.
Avoiding a tantrum
While the decision to taper is based on economic data, it eventually will be converted by Fed officials to calendar dates, though, as the Fed has done in the past, still linked to the data.
The key risk now is that the Fed, in trying to avoid a taper tantrum, maintains easy monetary policy too long, allowing inflation to become a permanent, rather than temporary, problem.
Reference: CNBC
Thai
Eng