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A senior Fed official called for a debate on reducing the size of central bank asset purchases if the U.S. economic recovery continues to accelerate. This is the latest sign that the Fed is gradually reducing its support for the economy.
Fed Vice Chairman Randal Quarles said on Wednesday that he believes that even after “excluding temporary factors,” the rise in U.S. inflation since December is “enough” to curtail asset purchases later in 2021 scale.
However, he said in a speech at the Hutchins Center for Finance and Monetary Policy of the Brookings Institution think tank that the labor market is still lagging.
“If my expectations for economic growth, employment and inflation in the coming months are confirmed… especially if they are stronger than I expected… it will become important. [Federal Open Market Committee] Begin to discuss our plan to adjust the pace of asset purchases at the upcoming meeting,” Quarles said.
“In particular, we may need additional public communication December Towards our broad and inclusive definition of maximum employment,” he added.
Quarles is not the only senior Fed official who hinted that if the economy continues to recover, the Fed is ready to start thinking about reducing monetary policy support.This represents a Transfer From the standpoint of the central bank, any discussion about curtailing asset purchases is premature.
In an interview with Yahoo Finance, Fed Vice Chairman Richard Clarida said: “In the upcoming meeting, we will begin to discuss the issue of reducing the pace of asset purchases.” “It will depend on the data stream we get.”
San Francisco Fed President Mary Daly also confirmed that the central bank is beginning to raise the topic of downsizing. “We are talking about scaling down, and this is what you want from us,” she said in an interview with CNBC on Tuesday. “You want to be followed for a long time here.”
Quarles said that the discussion about curtailing the Fed’s large-scale monetary stimulus measures during the pandemic is a “risk management” issue.
“Our best analysis at the moment is that the inflation rate rising far above our target will be temporary. However, those on the Federal Open Market Committee are economists and lawyers, not prophets, prophets and revelations. We may be wrong, then what will happen?” he said.
“Part of the reason for calculus to balance the risk of over and under our 2% target is that the Fed has the tools to deal with excessive inflation, and it is more difficult to reduce inflation below the target.”
Quarles added in a subsequent Q&A session: “If we change the monetary policy framework with an inflation rate of 6%, that will be another matter. We have some elbow space wrong here.”
The Fed’s favorite inflation indicator, the core PCE, is currently 1.8%. As part of the new method announced in August last year, it pledged to maintain ultra-loose policy until a more inclusive recovery is achieved.
Although Quarles emphasized the importance of the Fed discussing restrictions on asset purchases, he said that in the face of temporary increases in prices and wages, the central bank needs to remain “patient” as long as Inflation expectations “Consistent” with its goals. He added that any discussion of the Fed’s interest rate hike is a “distant future.”
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