Inflation Nation: Fed’s Harker Says Its Time to Talk About Tapering Bond-Buying

Federal Reserve
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Federal Reserve Bank of Philadelphia chief Patrick Harker on Wednesday said it is time for central bank officials to begin talking about scaling back its massive bond purchase program, going further than he has in earlier remarks and further than other Fed officials.

Fed policymakers agreed in April to keep purchasing $120 billion in bonds a month to support the economy and the flow of credit to businesses and households. At the time, Fed chair Jerome Powell said it was not time to begin “talking about talking about” reducing—or tapering—the bond purchases.

That was also the message in May. Harker said in a May 11th speech that the economy needed more time to recover before the Fed should begin discussing tapering. In an interview on CNBC that same day, St. Louis Federal Reserve President James Bullard agreed, saying “it’s too early to talk taper.”

Ten days later, however, in an interview with the Washington Post, Harker appeared to move closer to the view that the economy and financial markets could withstand some public talk from Fed officials about plans to taper.  The Fed should begin a conversation about tapering “sooner rather than later,” Harker said.

On Wednesday, Harker appeared to go even further.

“At the Fed, we’re planning to keep the federal funds rate low for long, but it may be time to at least think about thinking about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases,” Harker said.

He emphasized that policy should not sudden shift. Instead, he wants the Fed to begin by openly discussing tapering and then gradually reduce purchases.

“This is not something we are going to do suddenly, though. We need to follow the playbook we had after the Great Recession; that is, start to taper the bond purchases slowly. We will remove accommodation carefully and methodically as the economy continues to strengthen,” Harker said.

That puts Harker in the same camp as Dallas Fed President Robert Kaplan, who has been making the case since early May that discussion of the timing of tapering should begin soon.

“I would rather gently take the foot off the accelerator than have to press on the brakes down the road,” Kaplan said in a virtual panel hosted by the Dallas Fed in May.

Kaplan is scheduled to make a public appearance on Wednesday evening. It’s likely his remarks will also push the case for beginning tapering.

 

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