Fed’s Bostic Urges Faster Bond Taper as Economy Strengthens

(Bloomberg) -- Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank should move to taper its asset purchases after another strong month or two of employment gains, and proceed with that scaling-back process faster than in past episodes.

“We are well on the road to substantial progress toward our goal,” Bostic told reporters after a webinar speech on Monday, calling the addition of 943,000 jobs last month “definitely quite encouraging in that regard. My sense is if we are able to continue this for the next month or two I think we would have made the ‘substantial progress’ toward the goal and should be thinking about what our new policy position should be.”

Bostic is a rotating member on the Fed’s policy-setting committee through year-end. He’s staked out a more hawkish position than some of his colleagues. For interest rates, he said that he anticipates the first increase “very late” in 2022.

At a separate event Monday, Richmond Fed President Thomas Barkin also said he sees progress in the economy toward the central bank’s goals.

Employment Ratio

“I think it is fair to say on the price side we made substantial progress, maybe more than substantial progress,” Barkin said at an event in Roanoke, Virginia. “I believe there is still more room to run in the labor market.”

Barkin said he’s looking in particular at the employment-to-population ratio as a marker. Substantial further progress for him would be moving that figure somewhere in the range of 59%, compared with 58.4% in the latest report or about 61% in February 2020 -- before the pandemic hit, he said.

Fed officials began debating when and how they should taper asset purchases at their July meeting. The Fed is currently buying $120 billion of assets per month -- $80 billion of Treasury securities and $40 billion of mortgage backed debt -- and has pledged to keep up that pace “until substantial further progress” has been made toward its goals of maximum employment and 2% inflation.

“Right now I’m thinking in the October-to-December range, but if the number comes back big” as with the last report “or maybe even a little bigger, I’d be open to moving it forward,” Bostic said. “If the number really explodes, I think we would have to consider that.”

‘Relatively Fast’

The jobs gain last month was the biggest increase in nearly a year, and the unemployment rate dropped to a pandemic-era low of 5.4%. At the same time, payrolls remain 5.7 million short of pre-pandemic levels, and a pickup in Covid-19 cases stemming from the delta variant poses a risk to the pace of job growth.

Bostic said he favors “a balanced approach” -- tapering both mortgage-backed securities and Treasuries proportionally at the same rate.

“I am in favor of going relatively fast,” Bostic said. “The economy is in a much different place today” and “I am pretty confident these markets are going to continue to function even with a more rapid withdrawal, and I would be willing to lean into that to try to get us to complete the taper in a shorter period than what we have done in previous rounds.”

Bostic didn’t specify a time frame, though a colleague, St. Louis Fed President James Bullard, has suggested the taper could be started in the fall and end by March.

Asked about the slump in Treasury yields in recent months, Bostic suggested some of the explanation may lie in global market developments, with the delta variant “causing concerns in some of the more emerging markets.”

“It is a puzzle” even so, Bostic said. “The 10-year has been somewhat volatile over the last several months and it would not surprise me if those numbers return to some of the levels that they were at earlier in the summer.”

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