By Jonnelle Marte
(Reuters) – As the U.S. economy continues to recover from the coronavirus crisis and the labor market rebounds, it may be time for Federal Reserve policymakers to start thinking about the best way to slow the pace of its asset purchases, Philadelphia Fed Bank President Patrick Harker said on Wednesday.
“We’re planning to keep the federal funds rate low for long,” Harker said during remarks prepared for a virtual event. “But it may be time to at least think about thinking about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases.”
Harker said the Fed would not move suddenly when it begins to reduce the pace of the purchases, which were ramped up last year in an effort to stabilize markets and support the economy after it was upended by the pandemic.
“We will remove accommodation carefully and methodically as the economy continues to strengthen,” he said. “Our goal here is to be boring.”
Fed officials agreed at their last meeting to keep purchasing bonds at the current pace until there is substantial further progress toward the central bank’s goals for inflation and maximum employment. Several policymakers acknowledged recently that they are closer to discussing when to reduce some of those purchases. The Fed’s next policy-setting meeting takes place on June 15 and 16.
Harker said he expects the U.S. economy to grow by 7% this year and at a slower pace of about 3% in 2022. The policymaker said he expects job creation to pick up over the next several months and that the labor market could return to pre-pandemic trends by next summer.
The Fed has said it doesn’t plan to lift rates until the economy is back to full employment and inflation is set to reach its 2% target.
(Reporting by Jonnelle Marte; Editing by Andrea Ricci)
