MNI: Williams Sees Fed QE Taper This Year on Job Progress

New York Fed President John Williams said Wednesday the central bank could start paring back its monthly USD120 billion QE program this year if there is further good progress on job creation.

"Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year," Williams said in prepared remarks. His view is in line with minutes from July's FOMC meeting and Jackson Hole remarks from Chair Jerome Powell.

"It's clear that we have made substantial further progress on achieving our inflation goal," he said referring to the Fed's criteria for tapering QE. "There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met."

"Job gains have been strong in recent months, on balance— particularly in sectors that were especially hit hard at points during the pandemic, such as leisure and hospitality," he said, adding the economy should grow about 6% this year.

As for U.S. inflation, which has been running well above the Fed's target in recent months, Williams expressed confidence that such increases would prove temporary.

"After this year's spike in inflation related to the effects of the pandemic—and with inflation expectations and other measures of underlying inflation close to our 2% longer-run goal—I expect inflation pressures to moderate over time and for the inflation rate to come back to its underlying trend of around 2% next year," he said.

Williams stressed that a reduction in bond purchases would not signal an actual rise in interest rates is imminent. "There is still a long way to go before reaching maximum employment, and over time it should become clearer whether we have reached 2% inflation on a sustainable basis," he said.

His speech also sounded several notes of caution about the pandemic including: "There are indications in the most recent data that the spread of the Delta variant is weighing on consumer spending and jobs, and the pace of growth appears to be slowing somewhat relative to the first half."