Is The Fed Getting Ready to Consider Tapering Asset Purchases?
Are Fed officials ready to start discussions on tapering off some of the monetary stimulus measures rolled out to support the US economy
Are Fed officials ready to start discussions on tapering off some of the monetary stimulus measures rolled out to support the US economy through the coronavirus crisis? Although minutes of the latest meeting revealed that some policymakers have put such thoughts out, repeated comments from officials have downplayed any instance of easing anytime soon, keeping markets worried that the Fed’s dovish mood could extend longer even as the economic recovery progresses.
During the previous session, San Francisco Fed President Mary Daly confirmed to CNBC that they have started talking about a possible tapering off of the US central bank’s monthly asset purchase program. She also remarked, “I want to make sure that everyone knows that it’s not about doing anything now. Right now, policy is in a very good place….we need to be patient.”
But Daly is not the only one who sounds upbeat about the economic prospects in the medium-term – she has found support in Fed Vice Chair Richard Clarida, who had the following to say when asked about the Fed’s plans to taper assistance, “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. That was not the focus of the April meeting. It is going to depend on the flow of data.”
These recent remarks offer more hope to markets even as Fed Chairman Jerome Powell shut down any discussions about such tapering about one month ago, maintaining that it was too soon to think about such a move. What’s encouraging, however, is that after the last meeting held in April, two regional Fed presidents have already called for adding this to the agenda soon, raising concerns about inflationary pressures amid rapid economic recovery.
Investors have been concerned about the Fed’s plans to maintain monetary easing until employment and inflation rebound fully to pre-pandemic levels, as the economy risks overheating. Such a strategy could not only raise inflation and create new problems amid economic recovery, but also weaken investor confidence and send them towards other instruments in the market.
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