US Fed officials say tapering could still begin this year

Washington

SEVERAL Federal Reserve policymakers on Wednesday signalled that the US central bank remains on track to trim its massive asset purchases this year, despite the slowdown in jobs growth last month, and the impact of the recent Covid-19 resurgence.

"The big picture is that the taper will get going this year and will end sometime by the first half of next year," said St Louis Fed Bank president James Bullard in an interview with Financial Times.

He dismissed concerns that the labour-market recovery was faltering after the US economy in August created the fewest jobs in seven months.

He said the labour market could be "very strong" going into next year if the fight against the pandemic continues to improve.

In a separate appearance, Dallas Fed president Robert Kaplan said he still supports a gradual wind-down of monthly asset purchases starting in October, as long as the economic outlook does not fundamentally change.

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"Fear of infection is having an impact" on demand, he said at a Dallas Fed Town Hall, adding that he has downgraded his forecast for economic growth this year to 6 per cent, from 6.5 per cent.

But he predicted that next year, the world's largest economy will grow at about 3 per cent and inflation will rise 2.6 per cent.

The Fed has promised to keep purchasing Treasury securities and mortgage-backed securities at the current pace of US$120 billion a month until there is "substantial further progress" toward its goals for inflation and maximum employment.

Fed officials will meet again on Sept 21 and 22.

New York Fed Bank president John Williams said on Wednesday that he felt the standard was met for inflation, but he would like to see further improvement in the labour market before declaring substantial further progress toward the Fed's employment goals.

"Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year," he said during a virtual event organised by St Lawrence University.

Last month, Fed chair Jerome Powell said that, as of July, he agreed with most of his fellow policy-makers that the central bank should begin reducing asset purchases this year.

That was before the Labour Department released data showing the US economy added only 235,000 jobs in August, down sharply from roughly a million jobs added monthly in June and July.

Mr Williams said he is more focused on job gains over time than month to month. He said he will look at a range of indicators including the employment-to-population ratio and the labour force participation rate, for insights into labour market strength. "We just have to see the data as it comes in," he said during a video conference with reporters.

A report released by the Fed on Wednesday found the US economy "downshifted slightly" in August as the resurgent pandemic hit dining, travel and tourism.

Still, the Fed's Beige Book, a compilation of anecdotes about the economy, showed persistently strong demand for workers, with some employers struggling to hire because of high turnover, early retirements and challenges with childcare.

"The jobs are there; it's that the workers may not want to take those jobs right now," Mr Bullard said.

The Delta variant's spread is starting to pressure consumer spending and jobs growth, Mr Williams said. He expects the US economy to grow by about 6 per cent this year after adjusting for inflation, which he sees moderating next year to about 2 per cent.

"The emergence and rapid spread of the Delta variant in parts of the country and around the world has introduced a new layer of uncertainty," he said.

Mr Bullard said the Fed should wind down its asset purchases by the end of the first quarter for more "optionality" for adjusting interest rates.

Mr Williams said the Fed will treat decisions on tapering separately from interest rate moves.

"I don't see any decision we make in terms of tapering as indicating what the timing" will be for lifting rates, said Mr Williams. REUTERS