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Photo: Bloomberg
Photo: Bloomberg
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Fed’s Bostic says strong recovery could open door to bond taper this year

  • Atlanta Fed chief also says he isn’t worried about risk levels in financial markets or recent rise in long-term Treasury yields

Federal Reserve Bank of Atlanta President Raphael Bostic said that if the economy snaps back quickly this year, the Fed may be able to start paring back its bond-buying stimulus efforts later in the year.

Mr. Bostic said he is open to slowing the central bank’s $120 billion-a-month Treasury and mortgage bond buying if the economy is performing well. “A lot of it will depend on how the virus and the vaccine distribution goes; but if it goes well, if we learn quickly, I think that there’s some good upside potential there" for the economy, and Fed policy will need to react to that, he told reporters Monday after a virtual appearance.

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Mr. Bostic’s comments on Fed asset buying come as he is about to take one of four rotating voting slots allocated to regional Fed bank presidents on the interest-rate-setting Federal Open Market Committee this year.

At the December FOMC meeting, officials indicated their near-zero short-term rate target would stay there for several years. Officials also pressed forward with their bond-buying efforts, which are designed to support markets and keep long-term borrowing costs low.

While the coronavirus pandemic continues to rage, the arrival of vaccines is raising hopes for the economy, and with that, the possibility the Fed may be able to pull back on some of its support. A number of Fed officials recently have indicated that they either can’t offer a prediction on bond buying, or that the program likely would continue for the whole year at its current pace.

In an appearance on CNBC on Monday, Thomas Barkin, leader of the Richmond Fed and a fellow 2021 FOMC voter, declined to say what he expects to happen with the bond buying effort. “We’ve given outcome guidance, not date guidance," he said. Mr. Barkin said the Fed will pull back when it sees a lot of progress being made on lowering the unemployment rate and moving inflation back up and over the central bank’s 2% target.

In a separate appearance on Monday, Dallas Fed leader Robert Kaplan said that while the U.S. economy is likely to face a rough few months as virus cases surge, he believes vaccines will help propel a recovery that could see growth hit 5% this year, with the jobless rate possibly falling from its current 6.7% rate to between 4.5% and 4.75%.

Mr. Kaplan said now is not time for the Fed to pull back on aid, but added that if the recovery goes as expected, the central bank could consider slowing the pace of bond buying later this year.

In his comments to reporters, Mr. Bostic said central bank watchers should understand that conditions could change in an unpredictable economic climate, and that could open the door to pulling back on asset buying. By making sure the public knows this could happen, it can help tamp down on volatility, Mr. Bostic said.

“Long lead times and communication are actually really important," Mr. Bostic said. “If we’re going to be in a place where, you know, late 2021 could even potentially be in play, you’ve got to start hinting toward that" well ahead of the shift happening.

“A lot will happen between now and the end of the year, and a lot of that has upside potential, and I think that’s the larger point to be made," he said.

Mr. Bostic said a complex mix of factors will drive his thinking on monetary policy, including the recovery rate of overall activity, vaccination rates and job and inflation data.

Mr. Bostic also said he isn’t worried about risk levels in financial markets or the recent rise in long-term Treasury yields.

This story has been published from a wire agency feed without modifications to the text.

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