Fed's Bostic says 'reasonable' to begin bond-buying taper in October
WASHINGTON (Aug 27) - It would be "reasonable" for the Federal Reserve to trim its bond-buying program beginning in October if strong job gains continue, Atlanta Fed President Raphael Bostic said in the latest call by a U.S. central banker to start tapering the purchases soon and end them fast.
The Fed has been buying $120 billion in U.S. Treasury bonds and mortgage-backed securities each month to stem the economic fallout from the coronavirus pandemic, but is now moving toward reducing the stimulus as the recovery gains momentum.
"I would be comfortable with an October timeline for starting this" if U.S. job growth in August matches the nearly one million jobs that were added in each of the previous two months, Bostic told Reuters in an interview published on Friday.
The Fed could announce a plan to "taper" the asset purchases at its Sept. 21-22 policy meeting. A change is expected sometime this year, with debate still unfolding over when the plan should be announced and how fast the purchases should be reduced.
Bostic said that, once the taper started, he was "definitely looking to get this done as quickly as possible," and could support a full end to the Fed's asset purchases "toward the end of Q1" of 2022.
He spoke to Reuters ahead of the Fed's marquee Jackson Hole research conference, which will be kicked off with a speech on Friday by Fed Chair Jerome Powell. Bostic is a voting member of the Fed's policy-setting committee this year, and joins a vocal group of mostly Fed regional bank presidents who are ready to end one of the central bank's signature pandemic programs.
Beyond the taper debate, however, Bostic delved into the Fed's next-phase discussion of when to raise interest rates.
Since early this year he has said he expected inflation to be stronger than expected, and anticipated the Fed will need to lift its benchmark overnight interest rate above the current near-zero level sometime in 2022 - a step towards tempering the economic expansion to ensure prices remain under control. Most of his colleagues don't see rates rising until 2023 or later.
But more fundamental than the timing, Bostic said he felt Fed officials needed to begin to talk more precisely about how their new inflation approach will play out in practice, particularly now that the pace of price increases has run faster, for longer, than expected.
Inflation this year is pushing 4%, and the pace of the price hikes has been so strong this year that it has pushed average U.S. inflation over a period of several years up to the Fed's 2% target.
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