Fed officials ponder taper talk as economy bounces back

Some Federal Reserve officials are ready to discuss withdrawing aggressive monetary support from the central bank.

On Wednesday, Philadelphia Fed President Patrick Harker announced said “It may be time to at least think about tapering” the Fed’s asset purchase program. Since the depths of the pandemic, the program has raised approximately $ 120 billion in government bonds and mortgage-backed securities every month.

Dallas Fed President Robert Kaplan and Fed governor Randal Quarles are among the other Fed officials who have similarly expressed an interest in taking the first step in scaling back their easy money policies.

These discussions would take place amid what may be the fastest economic recovery ever, as the introduction of the vaccine brings the US economy back to life.

The Fed on Wednesday published a report and found that economic activity expanded “slightly faster” across the country than at the beginning of spring. In what is known as the Beige Book, several regions of the country reported a recovery in some of the hardest hit industries, namely leisure, travel and restaurants.

Still, Fed officials say the economy has not yet returned to its pre-pandemic state.

“Reopening a $ 20 trillion economy may take longer than closing it,” said Fed Vice President Richard Clarida Yahoo Finance said on May 25th.

Time to rejuvenate?

Fed officials have made it clear that they don’t have to wait for the economy to fully recover to slow their asset purchases. Instead, the central bank has announced that it will pull out as soon as the economy looks like it is making “significant further progress” towards its dual mandate goals of price stability and maximum employment.

In terms of price stability, inflation has Already arrived. The Beige Book found that the supply chain is collapsing for manufacturers, construction companies and home builders across the country.

However, Fed officials speculate that these price pressures will prove largely temporary, adding that if inflation gets out of hand, they can do so step on the brakes by increasing interest rates.

In the other area of ​​interest of the Fed, the recovery was comparatively slower: the labor market.

In April, there were still over 8 million fewer people working than before the pandemic. Jobs Mismatches, Fear of contracting the virus, childcareThe reasons given were unemployment insurance. The Beige Book found that higher wages are becoming a tool to bring workers back.

For example, the Federal Reserve Bank of Cleveland found that a recruiting company couldn’t find workers willing to return to work for a job less than $ 13 an hour.

Richmond Fed President Thomas Barkin wrote in a post on Wednesday that he would be interested in monitoring employment trends for the “next few months” in relation to wages.

With the labor market rebounding, Harker noted that withdrawal of Fed support would be slow.

“We will carefully and methodically remove the shelters as the economy continues to recover,” said Harker.

Brian Cheung is a reporter who covers the Fed, the economy, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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