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
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
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,"
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
Write to Michael S. Derby at firstname.lastname@example.org
(END) Dow Jones Newswires
May 05, 2021 17:26 ET (21:26 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.