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Bullard: Fed 'not quite there yet' to start taper talk

Federal Reserve Bank of St. Louis President James Bullard said Monday that the central bank is not yet ready to pull back on its aggressive monetary stimulus, but could be ready soon.

“We’re not quite there yet, I think we will get there in the months ahead,” Bullard told Yahoo Finance in an exclusive interview.

With the economy still re-opening and over 8 million people still out of jobs relative to pre-pandemic levels, Bullard said the Fed should not yet pare back on its so-called quantitative easing program.

Since the depths of the COVID-19 pandemic, the Fed has been absorbing about $120 billion a month in U.S. Treasuries and agency mortgage-backed securities.

[Read the full transcript of Yahoo Finance Live's interview with St. Louis Fed President James Bullard]

Bullard said vaccinations are bringing the economy “closer and closer” to pre-pandemic form, but said policymakers should not be too eager to pull back support yet.

“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” Bullard said.

President and CEO of the Federal Reserve Bank of St. Louis James Bullard speaks during an interview with AFP in Washington, DC, on August 6, 2019. - The Federal Reserve has set US interest rates
President and CEO of the Federal Reserve Bank of St. Louis James Bullard speaks during an interview with AFP in Washington, DC, on August 6, 2019. - The Federal Reserve has set US interest rates "in the right neighborhood," but will watch how the economy reacts to factors like the trade war, James Bullard, a key member of the central bank policy board, told AFP on Tuesday. However, Bullard, president of St Louis Federal Reserve Bank, said the Fed "can't realistically move monetary policy in a tit-for-tat trade war." Still, policymakers have "already done quite a bit" to help the economy and account for the uncertainty surrounding President Donald Trump's trade wars. (Photo by Alastair Pike / AFP) (Photo credit should read ALASTAIR PIKE/AFP via Getty Images)

A main concern among Fed watchers is rising inflation. Earlier in the month, data from the Labor Department showed consumer prices increasing at the fastest rates in over 10 years.

But Fed officials have dismissed a lot of those price pressures on temporary factors, pointing to bottlenecks in supply chains as a “transitory” dynamic that could fade in the short-term.

“We’ll see if the demand really flows through to a lasting increase in inflation or if this is just temporary,” Bullard said. “I think it's mostly temporary but then some of it will flow through to inflation expectations.”

He added that he expects inflation to rise above 2% in 2021 and into 2022.

Time to taper?

Fed Chairman Jerome Powell insisted in late April that it was going to “take some time” for the economy to get to a point where the central bank would feel comfortable slowing those purchases.

“We’ve said that we would let the public know when it is time to have that conversation, and we said we’d do that well in advance of any actual decision to taper our asset purchases,” said Powell on April 28.

Some other Fed officials feel the time to have that conversation is near. Philadelphia Fed President Patrick Harker said Friday that he would like to begin talking about tapering “sooner rather than later.” Dallas Fed President Robert Kaplan has articulated a similar notion for weeks.

“Maybe taking the foot gently off the accelerator would be the wise thing to do here,” Kaplan said on May 20, as reported by Reuters.

Bullard’s “in the months ahead” remark signals the possibility that a recovering economy later this year could kick off taper talks.

The Fed’s next scheduled policy-setting meeting will take place June 15 and 16.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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