WASHINGTON- The debate over when and how the Federal Reserve could begin to reduce some of its massive stimulus for the economy has begun, as two US central bank officials explained their support for an earlier withdrawal and a third said any change was still quite a ways away.
The conversation over the future of the Fed’s $120 billion in monthly bond purchases is just beginning, and is expected to be a central topic when Fed Chair Jerome Powell appears today before the US House of Representatives Select Subcommittee on the Coronavirus Crisis.
In prepared testimony released late on Monday, Powell said the US economy continues to show “sustained improvement” and forecast further job market gains and a decline in inflation from current elevated levels, but he did not say anything about the taper debate.
But earlier in the day, St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan laid out some of the major questions Fed officials will have to grapple with as they work through an early test of the central bank’s new strategic framework at a time when inflation is coming in strong and the labor market recovery is weaker than expected.
“Creating optionality for the committee will be really useful and that will be part of the taper debate as we think about how much signaling we are doing about future rate policy,” Bullard said during a virtual event organized by the Official Monetary and Financial Institutions Forum and the Philadelphia Fed.
Policymakers will need to bring inflation gently down to the Fed’s 2 percent goal, he said, and now, with the pandemic on the decline, is clearly the time to open the debate over the Fed’s bond-buying program.
Speaking on the same panel, Kaplan noted his concerns with a frothy housing market and the potential for easy policy to feed “excesses and imbalances.”
