Fed policymakers push back on QE taper talk

Fed policymakers push back on QE taper talk

By
Ann
Saphir
and
Howard
Schneider

(Reuters)

Despite
optimism
over
vaccines
and
the
likelihood
of
more
fiscal
stimulus
under
the
incoming
Biden
administration,
the
Federal
Reserve
is
sticking
with
its
super-easy
monetary
policy,
policymakers
made
clear
on
Wednesday.

“The
economy
is
far
away
from
our
goals
in
terms
of
both
employment
and
inflation,”
Fed
Governor
Lael
Brainard
told
the
Canadian
Association
for
Business
Economics.
“Given
my
baseline
outlook,
I
expect
that
the
current
pace
of
purchases
will
remain
appropriate
for
quite
some
time.”

The
Fed
is
adding
Treasuries
and
mortgage-backed
securities
to
its
balance
sheet
at
a
pace
of
$120
billion
a
month,
and
has
promised
to
keep
doing
so
until
it
sees
“substantial
further
progress”
toward
its
goals
of
full
employment
and
2%
inflation.

“Even
under
an
optimistic
outlook,
it
will
take
time
to
achieve
substantial
further
progress,”
Brainard
said,
adding
that
the
purchases
are
supporting
the
recovery
and
“we
stand
ready
to
increase
those
amounts
should
we
judge
that
to
be
warranted.”

St.
Louis
Fed
President
James
Bullard
said
that
while
the
labor
market
has
improved
dramatically,
there
was
still
a
long
way
to
go.

“Certain
sectors
have
really
been
hard
hit
and
for
them
to
come
back
we
are
going
to
have
to
get
this
vaccine
rolled
out,”
Bullard
said
in
an
interview
at
the
Reuters
Next
conference.
For
the
economy
as
a
whole,
“it’s
possible
you
get
a
boom…
but
let’s
wait
and
see
if
that
actually
happens.”

The
remarks
may
reset
expectations
among
bond
market
participants
and
investors
who
in
recent
days
have
been
increasing
bets
the
central
bank
could
pare
its
bond-buying
before
the
year
is
out.

They’ve
done
so
partly
because
the
election
of
two
Democratic
senators
last
week
from
Georgia
gives
the
incoming
Biden
administration’s
party
control
of
both
the
Senate
and
the
House
of
Representatives.

Economists
at
JP
Morgan
say
that
sets
the
stage
for
a
new
$900
billion
stimulus
package
in
the
next
few
months,
on
top
of
the
$892
billion
package
passed
last
month.
The
extra
cash
for
households,
businesses
and
others
boosts
the
odds
that
the
economy
will
meet
the
Fed’s
“substantial
further
progress”
bar,
allowing
the
taper
to
begin
“by
year’s
end,”
they
wrote
last
week.

Expectations
for
the
taper
also
gained
steam
after
Atlanta
Fed
President
Raphael
Bostic
and
Dallas
Fed
President
Robert
Kaplan
said
in
recent
days
they
expect
an
economic
surge
later
this
year
that
may
allow
the
Fed
to
begin
to
reduce
purchases.

NOW
IS
NOT
THE
TIME

Analysts
said
it
wasn’t
yet
the
right
time
to
set
the
stage
for
a
pullback
in
asset
purchases.

“I
think
it
is
just
a
mistake”
to
already
start
signaling
a
taper,
said
Joe
Gagnon,
senior
fellow
at
the
Peterson
Institute
for
International
Economics
and
a
former
Fed
staff
economist.

A
new
pandemic
aid
package
could
certainly
boost
the
economic
outlook,
he
said,
and
“it’s
not
unreasonable
to
start
thinking
internally
about
this

but
I
don’t
know
what
the
hurry
is
to
talk
publicly
about
it.”

Minutes
of
last
month’s
policysetting
meeting
showed
Fed
policymakers
want
to
let
investors
know
“well
in
advance”
of
any
plans
to
start
pulling
back
bond-buying.
That
stance,
analysts
say,
is
likely
motivated
by
a
desire
to
avoid
wrong-footing
markets
or
in
any
way
repeating
the
“taper
tantrum”
of
2013,
when
bond
yields
surged
in
response
to
Fed
Chair
Ben
Bernanke’s
unexpected
signaling
that
the
Fed
could
pare
bond
buys.

The
episode
ultimately
delayed
the
Fed’s
eventual
reduction
of
asset
purchases
and
a
rates
liftoff.

In
recent
weeks
bond
yields
have
risen
modestly,
though
not
enough
to
concern
Fed
policymakers.
Still,
Cornerstone
Macro
economist
Roberto
Perli
termed
the
phenomenon
a
“mini”
taper
tantrum,
calling
comments
about
reducing
bond
purchases
“extremely
unhelpful
to
the
credibility
of
the
Fed’s
new
framework.”

Fed
Chair
Jerome
Powell
speaks
Thursday
and
may
well
“reinforce
this
message…reiterating
the
large
gap
to
goals
and
a
steady-as-she-goes
approach
to
policy
with
no
early
consideration
of
a
policy
transition
in
response
to
better
fiscal
prospects,”
wrote
Evercore
ISI
vice
chairman
Krishna
Guha.

Still,
if
the
government
delivers
a
big
fiscal
package
and
vaccines
continue
to
be
rolled
out
successfully,
Fed
policymakers
could
deliver
a
“firm
taper
signal”
by
the
June
meeting,
Jefferies
(NYSE:)
economist
Aneta
Markowska
said

plenty
of
time
to
get
markets
ready
for
a
taper
by
the
end
of
the
year
if
needed.

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