By Michael S. Derby 

Several Federal Reserve officials said Wednesday that they see no need yet to pull back on central bank support for the economy despite an improving outlook.

The Fed still has "some ways to go before we reach our dual mandate goals of maximum and inclusive employment and inflation that averages 2%, " and for now "policy is likely on hold for some time," Federal Reserve Bank of Chicago President Charles Evans said in a virtual appearance at a conference.

Mr. Evans was referring to the central bank's near-zero interest-rate stance and its $120 billion a month in bond-buying stimulus that officials reaffirmed at their Federal Open Market Committee policy meeting last week.

In an appearance on CNBC, Fed Vice Chairman Richard Clarida also said he doesn't believe it is time to pare back support.

"We're still a long way away from our goals," he said. "We're certainly not there yet" when it comes to being able to make a decision on reducing stimulus.

Speaking separately, Cleveland Fed leader Loretta Mester sounded a similar note. She said she expects 6% to 7% economic growth and falling unemployment this year and that "my positive baseline outlook depends on appropriate monetary policy, which, in my view, will need to be very accommodative for some time to support the broadening of the recovery."

Ms. Mester said that she expects to see a notable jump in inflation over the next couple of months, with an overshoot of the Fed's 2% target this year. But she said that inflation arc is unlikely to generate an interest-rate rise.

Meanwhile, Eric Rosengren, the leader of the Boston Fed, said, "While rapid economic growth is very good news, it was, and still is, badly needed to offset the sizable shock that occurred with the Covid-19 pandemic." He added in a speech text that "this implies that current policy will remain accommodative until the labor market can consistently help deliver on the Fed's 2% inflation goal."

The Fed officials weighed in after New York Fed leader John Williams told The Wall Street Journal: "I don't take for granted, even with the good news we're seeing, that we're going to get that full and robust recovery that we really want without really strong monetary policy support."

He also said that he doesn't believe Fed bond-buying efforts are fueling excessive risk taking in financial markets, at least to the degree that it would drive the Fed to change its stance on stimulus delivered via Treasury and mortgage bond purchases.

Mr. Evans and Ms. Mester also offered some guidance on the outlook for the Fed's bond-buying efforts. Financial markets are debating when the Fed may ease back on those purchases ahead of an eventual increase in the near-zero federal-funds rate target.

"I personally think that the achievement of sustainable inflation averaging 2% is a lot harder than many people think, and so I'm not in a hurry in any way to have that discussion" about pulling back on asset buying, Mr. Evans told reporters after his speech.

Ms. Mester said that even if the Fed does ease back on bond buying, it would still be doing a lot to help the economy. "After the FOMC decides that the conditions for tapering have been met, we will still be purchasing assets and monetary policy will remain highly accommodative," she said.

She later told reporters that she agrees with the idea that Fed asset buying isn't destabilizing markets, saying, "I don't think that we're at that point now I don't perceive we're going to get to that point." But Ms. Mester added it is something central bankers need to watch.

In his formal remarks, Mr. Evans acknowledged growing more upbeat about the outlook as the pace of vaccination moves forward. While there are "many uncertainties and risks on the road ahead," Mr. Evans said, "I am very optimistic about our economy's growth prospects, and am hopeful that our employment goal will be in sight before too long."

"One important reason for my optimism is that we have made good progress on the health front," Mr. Evans said. "Though case loads are still worrisome, the numbers are much lower than they were at the turn of the year."

But getting inflation persistently back up to the Fed's 2% target may prove more difficult, the official said. He also pushed back against fears that, as the economy reopens and works through supply bottlenecks, inflation could spiral out of control.

"It seems to me that such an accelerationist view is on the minds of many of those warning about an outbreak of inflation today," Mr. Evans said, adding that "I think the risk of this scenario is remote."

Mr. Evans offered some guidance about how he will assess inflation dynamics in future. "I would not be concerned about inflation moving persistently too high unless we saw some quite outsized movements in financial-market pricing at the longer maturities or in survey-based measures of inflation expectations," he said.

Federal Reserve governor Michelle Bowman also spoke Wednesday and said, "I am encouraged by the recent pace of the economic recovery, and I remain optimistic that this strength will continue in the coming months."

The official, who is the central bank's point person on community banking issues and an infrequent voice on monetary policy, also said, "We really can't know how the pandemic will proceed and how that will affect the U.S. economy, but I think we are currently on a good path, and our policy is in a good place."

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

May 05, 2021 17:26 ET (21:26 GMT)

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