Williams Says Now Not the Time for Fed to Adjust Bond Buying

Now is not the time for the Federal Reserve to adjust its bond-buying program, though it makes sense for U.S. central bankers to be talking through options for the future, New York Fed President John Williams said.

“The economy has improved, and I think it’s on a good trajectory, but to my mind, we’re still quite a ways off from reaching the ‘substantial further progress’ that we’re really looking for, in terms of adjustments to our purchases,” Williams said Thursday in a Yahoo! Finance interview.

“That said, we have to be thinking ahead, planning ahead, and so I do think it makes sense for us to be thinking through the various options that we may have in the future -- talking about talking about how the economy is doing, where we see it going, and understanding how that may play out over the coming months,” he said.

The U.S. central bank is currently buying $120 billion of Treasury and mortgage-backed securities per month as part of the policy program it put in place last year in response to the pandemic. Fed officials have said they will begin scaling back the purchases when the economy has made “substantial further progress” toward their goals, a condition many Fed-watchers believe will be met later this year.

Williams’ comments “suggest to us that the Fed could begin what we expect will be protracted QE tapering discussions as early as the upcoming June FOMC meeting, and if not will do so by July,” Krishna Guha, vice chairman at Evercore ISI, wrote in a note to clients. Fed asset purchases are often referred to as quantitative easing, or QE. Policy makers next meet June 15-16.

Minutes of the most recent Federal Open Market Committee meeting in April showed that “a number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

The reference to “upcoming meetings” was echoed last week by Fed Vice Chairs Randal Quarles and Richard Clarida.

Williams Says Now Not the Time for Fed to Adjust Bond Buying

One of the reasons that some policy makers have started to push publicly for a discussion on scaling back bond buying sooner rather than later is the threat of unwanted inflation. Data last week showed the central bank’s preferred gauge of price pressures -- the personal consumption expenditures price index -- rose 3.6% in April.

But Williams played down the risks of inflation running harmfully above the Fed’s 2% goal for a prolonged period.

“My personal view is that a big chunk of the increase in the inflation measures that we’ve seen is partly this reversal of price declines from before -- what we often call base effects -- plus some special factors like used cars,” he said.

Businesses running on lean inventories had found it hard to adjust to the U.S. economy’s rapid reopening amid supply-chain issues and shortages, Williams said. But he saw “those as being worked out over coming months and quarters.”

In addition, he said that inflation gauges produced by the Fed to track underlying price pressures had so far shown “moderate increases in prices more consistent or near our 2% goals.”

The Dallas Fed’s trimmed mean PCE measure rose 1.8% in April compared with a year ago.

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