Fed policymakers hone in on November taper timeline

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(Businesshala) – Two US Federal Reserve policymakers said on Tuesday that the central bank is in sync with a planned move to ease its bond buying program, reinforcing expectations that the Fed will start as soon as next month. will begin to withdraw its crisis-era incentives.

FILE PHOTO: Federal Reserve Vice Chairman Richard Clarida speaks on the phone during the three-day “Challenge for Monetary Policy” conference in Jackson Hole, Wyoming, US, August 23, 2019. Businesshala / Jonathan Crosby

Clarida said in prepared remarks to the Institute of International Finance, “I myself believe that the ‘substantial forward progress’ standard has been met in relation to our price-stability mandate and all with respect to our employment mandate. Is.” The virtual annual meeting, as he reiterated that the Fed agreed at its last meeting “might be warranted sooner” and will likely end in the middle of next year.

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Clarida’s upbeat valuation likely echoes the sentiments of her boss, Fed Chair Jerome Powell, who previously said she only needed to see a “decent” September US jobs report to get ready to begin ramping up bond purchases in November. Is required.

Earlier on Tuesday, Atlanta Fed President Rafael Bostic said last month’s jobs report displayed substantial progress and supported the start of November. “I would feel comfortable starting in November,” he said in an interview with the Financial Times. “I think progress has been made, and the sooner we move on that the better.”

The jobs report, released last Friday by the Labor Department, added 194,000 jobs in September, well below analysts’ expectations, but the upward revision in previous months means the economy can no longer hold jobs than it faced in December. When the Fed sets to begin tapering constraints on jobs and inflation, “considerably further progress” has been achieved. Fed policymakers are already almost all aligned that higher-than-expected inflation has reached their limits.

Fed policymakers at their last meeting saw the unemployment rate fall to 4.8% by the end of this year, a benchmark already reached last month.

economy continues to improve

The economy has strengthened and “conditions in the labor market continue to improve,” Clarida said, though he said the pandemic was taking a toll on jobs and participation.

Before the jobs data, Fed policymakers were divided between those who had already seen this year’s gains enough to begin easing the asset purchase program and those who waited for some more evidence. The job recovery remained on track. The Fed’s next policy meeting is scheduled for November 2-3.

The Fed is buying $120 billion a month in treasury and housing-backed securities as part of its emergency response to the COVID-19 pandemic to help keep borrowing costs down, but stressed that bond purchases outweighed their usefulness. current environment.

US economic output has already exceeded pre-pandemic levels, Americans are sitting on at least $2.5 trillion in excess savings accumulated during the pandemic, and consumer spending remains strong. Bond purchases most directly affect demand while economies around the world are grappling with labor and goods shortages.

In fact, demand growth as the U.S. economy has reopened has led to a steady increase in inflation, which should keep price growth well above the Fed’s 2% average inflation target through the end of the year and into 2022. determined to keep.

“The big unknown right now is how long it will take for the effects of these bottlenecks to work their way through,” Clarida said in a question-and-answer session. “My base case is not for a standoff on the middle horizon.”

If inflation doesn’t begin to ease next year, as most Fed policymakers, including Clarida, still hope, the central bank could be forced to raise interest rates to zero before the labor market fully recovers. “Inflation risks are on the upside,” Clarida acknowledged, though he shrugged off any assumptions that the Fed will face a choice between its two mandates, saying inflation expectations remain on hold.

Reporting by Lindsey Dunsmuir and Ann Safir; Editing by Andrea Ricci


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