A senior Federal Reserve official has called for a debate on declining central bank asset purchases if the U.S. recovery continues to pick up steam, the latest sign that the Fed aims to reduce the their support for the economy.
Randal Quarles, vice president of the Fed, said Wednesday that, even after “taking into account temporary factors,” rising U.S. inflation since December “would prove sufficient” to merit a decline in government spending. next year in 2021.
However, the job market is still lagging behind, he said in remarks to the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution, a think-tank.
“If my expectations on economic growth, employment and inflation for the coming months are met… And especially if they come stronger than I expect… It will become important for the [Federal Open Market Committee] to start discussing our plans to adjust the pace of asset purchases at future meetings, ”Quarles said.
“In particular, we may need additional public communications on the conditions that constitute substantial progress since then. December towards our broad and inclusive definition of maximum employment, ”he added.
Quarles isn’t the only Fed official to hint at the central bank’s readiness to begin considering a reduction in its support for monetary policy in case the economy continues to recover. This represents a move from the central bank’s position that any discussion about declining asset purchases was premature.
“There will come a time in the next meetings, we will be at the point where we can start discussing slowing down the pace of asset purchases,” Richard Clarida, also vice president of the Fed, said in an interview with Yahoo Finance . “It depends on the flow of data we get.”
Mary Daly, president of the San Francisco Fed, also confirmed that the central bank is beginning to address the issue of the decline. “We’re talking about declining, and that’s what you want out of us,” he said in an interview with CNBC Tuesday. “You want to be seen long here.”
Quarles said the discussion about limiting the maximum monetary stimulus put in place by the Fed during the pandemic was a matter of “risk management.”
“The best analysis we currently have is that the rise in inflation well above our target will be temporary,” he said. “But those of us in the FOMC are economists and lawyers, not prophets, seers and revelators. We could be wrong, and what happens then?”
“Part of the calculation for balancing the risks of both overcoming and under-suspending our 2 percent target is that the Fed has the tools to deal with inflation that runs too high, while it’s harder to raising inflation that falls below the target, ”he added. .
While stressing the importance of a Fed discussion on limiting asset purchases, Quarles said the central bank needed to be “patient” in the face of temporary increases in prices and wages, as long as inflation expectations they were “consistent” with their goals. Any discussion of an increase in interest rates at the Fed was “far into the future,” he added.