Several Fed policymakers indicated yesterday that the US Federal Reserve is still on track to dial back its massive asset purchases this year, despite the slowdown in job growth seen in August and the impact of the recent resurgence of coronavirus infections.
“The big picture is that the taper will get going this year and will end sometime by the first half of next year,” James Bullard, president of the Federal Reserve Bank of St. Louis, said in an interview with the Financial Times.
Bullard dismissed fears of a faltering labor market after the US economy in August created the fewest number of jobs in seven months. He said the job market could be "very strong" next year if the fight against the pandemic continues to improve.
Dallas Fed President Robert Kaplan also stated that he remains in favor of tapering monthly asset purchases starting in October, as long as the economic outlook remains essentially unchanged.
" Fear of infection is having an impact” on demand, Kaplan acknowledged at a Dallas Fed Town Hall, adding that he has downgraded his forecast for economic growth this year to 6%, from 6.5%. But he predicted that next year, the economy will grow at about 3% and inflation will rise 2.6%.
The Federal Reserve has pledged to continue buying Treasuries and mortgage-backed securities at the current pace of $120 billion per month until there is "another significant progress" toward their inflation and maximum employment goals.
Federal Reserve officials will meet again in two weeks, on September 21 and 22.
New York Fed President John Williams said on Wednesday that he felt the inflation benchmark had been met but would like to see further improvement in the labor market before announcing more significant progress toward the Fed's employment targets.
" Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year," Williams added during a virtual event organized by St. Lawrence University.
Last month, Federal Reserve Chairman Jerome Powell said that as of July he agreed with most of his fellow policymakers that the Fed should start reducing asset purchases this year. That was before the Labor Department released data showing that the US economy added only 235K jobs in August, down sharply from about 1 million jobs added per month in June and July.
Williams said he's focusing more on job gains over time than month to month. He said he would look at a range of indicators, including the employment-to-population ratio and labor force participation rate, for an insight into the strength of the labor market.