Three Fed Policy Hawks Push Early Taper Despite Risk From Delta
Three of the Federal Reserve’s leading hawks, on the eve of the central bank’s annual Jackson Hole symposium, urged that policy makers move quickly to slow asset purchases despite the risk from the spreading delta variant.
Federal Reserve Bank of Dallas President Robert Kaplan said he favors an announcement at the central bank’s September meeting to begin tapering bond buying and implementing it in October or shortly after. St. Louis’s James Bullard called for a start in the fall -- finishing by the end of the first quarter in 2022, while Kansas City Fed’s Esther George urged an early move begin this year.
The three, speaking in television interviews, highlighted one side of the debate among U.S. central bankers. None of them vote on policy in 2021. Fed Chair Jerome Powell has struck a more patient tone and will give his take on the outlook Friday in a virtual speech to get the day-long forum under way.
“I think it’s important to get started and the conditions of pace, timing of when we end, I’m open minded to listening to the debates around that,” George said in a Bloomberg TV interview with Michael McKee conducted Wednesday evening. “But I am less interested in deferring that decision.”
Bullard echoed that view in a CNBC interview Thursday, adding that the delta variant’s impact could be reaching a peak.
“Some on Wall Street seem to think that the numbers are rolling over on delta,” Bullard said. “I don’t really know if we can say that yet but it will peak at some point. The main message here is the economy has learned to adapt to the pandemic.”
U.S. stocks declined as investors absorbed their comments. Treasury yields rose along with the dollar.
While George has been a longtime policy hawk and Bullard has changed his views to more hawkish this year in light of a stronger job market, both will gain votes in 2022 on the policy-setting Federal Open Market Committee. Kaplan, also a hawk, will vote next in 2023.
“It would continue to be my view that when we get to the September meeting, we’d be well served to announce a plan for adjusting purchases and begin to execute that plan in October or shortly thereafter,” Kaplan told CNBC.
That seemed to be a small shift in tone from his most recent comments, when he said he would be open to adjusting calls for a quick tapering of bond buying if delta hurts the economy’s progress.
George suggested she might have more flexibility on when the taper should actually be implemented, saying “I think we should get started this year so that we can begin to pare the amount of accommodation.”
“The economy continues to grow at a strong rate,” George said, adding that in terms of the potential risk of the delta variant, “you can imagine that it might slow down some of the returns to the labor market. But I don’t expect at this point that it will derail the economy.”
Most Federal Reserve officials agreed last month they could start slowing the pace of bond purchases later this year, judging that enough progress had been made toward their inflation goal, while gains had been made toward their employment objective, according to the minutes of the FOMC’s July 27-28 meeting.
Bullard said he favored getting started with tapering in the fall and wrapping up the process by the end of the first quarter, which would give the FOMC the option of raising rates earlier in 2022 if needed.
“There is some worry that we are doing more damage than helping with the asset purchases because there is an incipient housing bubble in the U.S.,” Bullard said.
With the median house price approaching $400,000, Bullard added, “You are pricing low-income people out of this market. I’m not sure that is what we want to do. We got into a lot of trouble in the mid-2000s by being too complacent about housing prices.”
The Fed has pledged to buy $80 billion in Treasuries and $40 billion in mortgage securities a month until the economy shows “substantial further progress” on inflation and employment as it recovers from Covid-19.
The Kansas City Fed shifted its annual gathering last Friday in light of elevated health risks outside Jackson, Wyoming. Covid-19 cases have spiked across the country as the delta variant spreads, spurring companies to re-evaluate return-to-work plans and schools to return to virtual education, quarantines and mask requirements.
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