Fed officials say tapering could start again this year

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September 8 (Reuters) – Two Federal Reserve officials said on Wednesday that the U.S. central bank may start cutting back on massive asset purchases this year despite the slowdown in job growth seen in August.

“The big picture is that the reduction will start this year and end in the first half of next year,” James Bullard, chairman of St. Louis Fed Bank, said in an interview with the Financial Times.

Bullard dismissed concerns that the labor market recovery was faltering after the US economy in August created the fewest jobs in seven months. He said the job market could be “very strong” next year if the fight against the pandemic continues to improve.

Fed officials have said they will continue to buy treasury and mortgage-backed securities at the current rate of $ 120 billion per month until there is “further substantial progress. “towards their inflation and maximum employment targets.

New York Fed Chairman John Williams on Wednesday said he believes the norm has been met for inflation, but would like to see further improvement in the labor market before declaring further substantial progress towards the Fed’s employment targets.

“Assuming the economy continues to improve as I anticipate, it might be appropriate to start slowing down the pace of asset purchases this year,” Williams said at a virtual event hosted by the St. Lawrence University.

The minutes of the Fed’s July meeting showed that most policymakers agreed that they expected the central bank to start cutting asset purchases this year. read more This was before the Department of Labor released data showing the US economy created just 235,000 jobs in August, down sharply from around 1 million jobs created each month in June and July.

Williams said he focused more on job gains over time than month-to-month. He said he would look at a range of indicators, including the employment-to-population ratio and the labor force participation rate, to gain insight into the strength of the labor market.

“We just have to see the data as it comes in,” Williams said in a video conference with reporters.

UNCERTAIN OUTLOOK

A report released by the Fed on Wednesday found that the US economy “contracted slightly” in August as the new wave of the pandemic hit restaurants, travel and tourism.

Still, the Fed’s Beige Book, a compilation of anecdotes on the economy, showed continued strong demand for workers, with some employers struggling to hire due to high turnover, early retirements and labor issues. child care. Read more

“The jobs are there, so workers may not want to take those jobs now,” Bullard said.

The spread of the Delta variant is starting to put pressure on consumer spending and job growth, Williams said. He expects the US economy to grow by around 6% this year after adjusting for inflation, which he plans to moderate next year to around 2%.

“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,” Williams said at the event with St. Lawrence University.

Bullard said the Fed should cut back on asset purchases by the end of the first quarter to give the central bank more “option” to adjust interest rates.

Williams said the Fed will treat interest rate cut decisions separately from interest rate movements.

“I don’t see any decision we’re making in terms of the reduction as indicating when will be the time” for the rates to be lifted, Williams told reporters.

Fed officials will meet again in two weeks on September 21-22.

Reporting by Jonnelle Marte Editing by Chizu Nomiyama and David Gregorio

Our Standards: Thomson Reuters Trust Principles.

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