Fed news: fresh comments from officials reveal the position of the regulator
Federal Reserve officials have a lot of work to do. They need to consider the “coronavirus” uncertainties associated with vaccine success, and the impact of fiscal and monetary stimulus on the economy and inflation. And we are not yet raising the issue of the political crisis.
This is not an easy task, and perhaps the best way to solve it would be minimal policy calibration. “The less we change, the better,” said the head of the Federal Reserve Bank of Philadelphia Patrick Harker.
Vaccination not fast enough postpones economic normalization
For example, this year Harker would prefer not to change the volume of the bond buyback program from the current $ 80 billion (plus another $ 40 billion in mortgage-backed securities) monthly. However, he acknowledged that, depending on the success of vaccinations, the Fed could cut vaccinations by the end of the year.
At the Philadelphia Business Journal conference last week, Harker said the spread of the COVID-19 vaccine “has been incredibly disappointing so far.”
As a result, the surge in economic growth is postponed to the second half of the year, and in the first quarter it may even decline. Harker predicts the recovery will be uneven and some jobs could be lost forever as the pandemic has accelerated the pace of automation.
On Friday, the vice chairman and member of the Board of Governors of the Fed, Richard Clarida, spoke at the presentation of the Council on Foreign Relations. He believes that the Fed will not adjust the parameters of the bond buyback program throughout 2021, even if the economy strengthens:
The data suggests that it may take some time before we consider a slowdown in asset purchases, and I’m relatively optimistic about the outlook for the economy.
When questioned, Clarida said he was outraged “like all Americans” at the images of the crowd that stormed the Capitol last week. However, he added that the Fed looks forward to working with an economic group appointed by President-elect Joe Biden, led by former Fed Chairman Janet Yellen as Treasury Secretary.
Recently, there have been reports that Joe Biden is considering another Fed veteran (Nellie Liang) as a candidate for a high position in the Treasury Department. Perhaps even for the post of Deputy for Internal Finance. Liang served at the Fed in various positions from 1986 to 2017 and was nominated to the Board of Governors in 2018, but her appointment never went through a committee hearing. She currently works at the Brookings Institution.
Last week, the heads of other regional banks spoke about some of the nuances of the Fed’s position. Richmond Fed chief Thomas Barkin echoed Harker’s remark that the slow spread of the vaccine is delaying economic normalization, putting it off “for the summer at best.”
However, he was optimistic about the recent surge in government bond yields, seeing this as a sign of high inflationary expectations from investors. “This is what we are trying to support,” he said last week during an online conference with representatives of North Carolina companies.
But the head of the Federal Reserve Bank of Chicago, Charles Evans, is skeptical about the rate of inflation. He said the spike in fiscal stimulus was not as strong as he would have liked. Evans believes that inflation will not exceed the 2% target until 2023, and the Fed may not raise rates until mid-2024 (in line with a new policy that allows inflation to be exceeded to bring the average to this level).
The head of the Federal Reserve Bank of San Francisco Mary Daly said that she was encouraged by the growth of inflationary expectations. In an online speech before the Shadow Open Market Operations Committee (SOMC), she said that a strong labor market will help accelerate inflation (even if it is weaker than in the past).
St. Louis Fed President James Bullard believes that the pace of economic recovery and inflation growth will be faster than many expect. A decade of depressed price increases may not be a good benchmark for this year. He told reporters about this at the event in Little Rock, saying that “he expects more volatile pricing and possibly higher inflation than usual.”
Fed officials know the economy will not recover until the coronavirus is defeated. “Basically, this is a health crisis. All the economic consequences were the result of our reaction to it, ”said Atlanta Fed President Rafael Bostic this week.
Until this issue is resolved, economic growth will be suppressed.
If the situation returns to normal faster than initially expected, then the Fed may have to reconsider its position on a number of issues, but rates will remain at current levels until late 2022 or early 2023. “A lot has to happen to raise them,” Bostic says.