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Kansas City Fed's Esther George: 'Time to begin' tapering asset purchases

·3 min read

Federal Reserve Bank of Kansas City President Esther George is still advocating for the central bank to slow its stimulus starting next month, despite the rising cases of the Delta variant.

Ahead of the central bank’s Jackson Hole Economic Symposium set to take place Friday, George told Yahoo Finance that economic activity does not appear to be slowing down despite the fresh spike in COVID-19 cases nationally.

“That gives me some confidence in the outlook that we see, that we could continue to push through this,” George said in a taped interview Wednesday.

George said that momentum supports her call for the Fed to begin “tapering” its asset purchase program. Since the depths of the pandemic, the Fed has been snatching up about $120 billion a month in U.S. Treasuries and agency mortgage-backed securities, committing to maintaining at least that pace of purchases until the economy looks like it had made “substantial further progress.”

[Read the full transcript of Yahoo Finance's interview with Fed Kansas City President Esther George.]

George said “strong job gains” and higher inflation readings point to an economy that, in her view, has already hit that mark.

“I think it is time to begin to ease back from the amount of accommodation that's going into the economy given the outlook that we have, so I would be in favor of beginning that process sooner rather than later,” George said.

Esther George
Kansas City Federal Reserve President Esther George talks to Yahoo Finance ahead of the virtual Jackson Hole Symposium.

Although there are still 5.7 million fewer people on payrolls compared to pre-pandemic levels as of July, George said tapering will not be a “material issue” to the labor market recovery.

“That tapering process continues to provide some accommodation along the way, until it ends,” George said, pointing out that real (or inflation-adjusted) interest rates remain and will remain negative.

Those remarks set the stage for what could be a pivotal next policy-setting announcement on Sept. 22. Some of George’s colleagues, such as Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari, are in the camp of wanting to wait past September before announcing a taper.

George is not a voting member of this year’s committee, which rotates policy-deciding votes among the regional bank heads each calendar year.

Life after tapering

The Kansas City Fed chief said that while she is eager to kick off taper discussions, it is too early to define the mechanics for slowing down its purchases.

There are looming questions about how long the Fed would want to drag out a slowing of its purchases, in addition to whether or not the Fed will try to end its mortgage-backed securities purchases before its Treasury purchases.

George declined to share her thoughts on either question, noting that the “most important” decision now is the timing of starting the process. She added that Fed watchers should also be careful not to tie eventual interest rate hikes to the timing of a taper announcement.

“The end of asset purchases does not have a mechanical link to the lift off of interest rates,” George said.

More Fed commentary is expected at the Jackson Hole conference on Friday, which was moved to a virtual format due to the rise of Delta cases in Wyoming.

The theme of the conference is “Macroeconomic Policy in an Uneven Economy,” which may showcase the central bank’s move last year to prioritize getting the economy as close as it can to maximum employment — even if inflation rises above its 2% target.

“This was an extraordinary shock to the global economy,” George told Yahoo Finance, referring to the COVID crisis, adding that the conference will look at which groups were disproportionately impacted and how fiscal and monetary policy responded.

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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