MNI: Fed's Bostic Favors Fast Taper Start in Oct-Dec Timeframe

Atlanta Fed President Raphael Bostic said Monday his base case would be to begin a fast tapering process in the October to December range, but if job increases come in bigger than expected in the coming months then taper could be moved forward.

"We've made a substantial amount of progress," he said about prices, adding that "we're well on the road to substantial progress toward our goal" on employment. "My sense is that if we are able to continue this for the next month or two we'll have made substantial progress toward the goal, and should be thinking about what our new policy positions should be," he told reporters after giving remarks at a Prosperity Partnership event.

"Right now I'm thinking in the October to December range," he said about beginning taper, adding he'd be "open to moving it forward."

"The challenge with that is that the committee has been very clear as we want to give people plenty of time to digest what we're doing and not have big surprises in that space," he said. "That would be the big challenge in terms of moving in September, but if the number really explodes, I think we have to consider that."

"In terms of the character of the tapering, I'm in favor of a balanced approach to tapering both the MBS and the Treasury, at the same rate, so that they reduce proportions in the same proportion, so that the end of reduction at a monthly basis they the same proportion," he said. "I am in favor of going relatively fast."

DIFFERENT PLACE

Bostic argued that the economy is in a "different place" and able to handle a quicker withdrawal of assets purchases. "I'm pretty confident that these markets are going to continue to function even with a more rapid withdrawal and I'd be willing to lean into that to try to get us to complete the taper in a shorter period than what we've done in previous rounds."

The Atlanta Fed chief repeated that he sees a single rate hike in late 2022 and two hikes in 2023. Bostic has previously said he would prefer to see the completion of an asset purchase taper before hiking short-term interest rates off zero.

His view of tapering the central bank's asset purchases comes as he increased his forecast for inflation, seeing headline PCE inflation in the 3.5-3.6% range by the end of the year, and downgraded his view of labor markets, seeing the unemployment rate at the end of this year in the 4.7-4.8% range. Dallas Fed President Rob Kaplan has also raised his view of prices, seeing PCE inflation near 3.9% at the end of the year.

Bostic, whose Fed region is bearing the brunt of America's surge in Delta variant cases, said he is expecting localized spikes in outbreaks but is not expecting the more contagious variant to derail the recovery.