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Two Fed Officials Push Back on Talking Bond Taper Any Time Soon

Steve Matthews and Craig Torres
·3 min read

(Bloomberg) -- Don’t discuss reducing the amount of monetary-policy support for the U.S. economy while the pandemic is still raging, said two Federal Reserve officials after some of their colleagues mooted a debate later this year.

“We want to get through the pandemic and sort of see where the dust settles, then we will be able to think about where to go with balance-sheet policy,” Federal Reserve Bank of St. Louis President James Bullard said Tuesday during an online interview with the Wall Street Journal.

Noting that the outlook will hinge on the successful rollout of Covid-19 vaccines and the path of the virus, Bullard said “we are going to have to see how all of that proceeds here going forward. Then we will be in a position to make a judgment.” Bullard is not a voter this year on the rate-setting Federal Open Market Committee.

The Fed last month signaled interest rates would stay near zero at least through 2023 and pledged to keep buying bonds at a $120 billion monthly pace until “substantial further progress” had been made on its employment and inflation goals.

Boston Fed chief Eric Rosengren, speaking later Tuesday, also made clear he didn’t want to get into the debate of when to pare back that massive support.

“I expect it to be a little while before we’re even talking about tapering on our purchases of government and mortgage-backed securities,” he said in answer to a question following a speech.

Their remarks are the latest from officials on whether the Fed should discuss tapering bond purchases later in 2021, catching the attention of investors as the yield curve steepens and rates on 10-year Treasuries push to the highest levels since March.

Atlanta’s Raphael Bostic and Dallas Fed chief Robert Kaplan have both recently said they’re open to discussing it if the economic recovery from the virus is sufficiently robust.

Fed Vice Chair Richard Clarida said last week that he did not favor tapering this year. Fed Chair Jerome Powell could weigh in on the matter when he talks Thursday, in one of the final speeches by a U.S. central banker before they enter their blackout period before the Jan. 26-27 FOMC meeting.

‘Encouraging Sign’

Bullard, who said he expects the economy to perform well this year as vaccines are rolled out, welcomed the increase in the spread between short- and long-term debt.

“I would consider it an encouraging sign that the Treasury 10-2 spread is returning to more normal levels for an expansion,” he said. “I think markets are hoping to see the end of the pandemic in 2021. They’re hoping to see good growth going forward, and because of that you’re seeing the yields normalize. So I think that’s a good outcome.”

Bullard said that back in 2013, once the central bank actually began to slow the pace of its monthly bond buying, the process ran smoothly.

“I think the goal would be exactly the same thing here, replicate that when the time comes. We are not close to that yet.”

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