MNI: Fed's Harker: Time to Think About Tapering QE

Federal Reserve Bank of Philadelphia President Patrick Harker on Wednesday said it's time to start discussing pulling back the Fed's asset purchases in light of a strong recovery from Covid, the latest U.S. central banker to do so in recent weeks.

"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 USD120 billion in monthly Treasury bond and mortgage-backed securities purchases," he said in remarks prepared for a finance forum in Washington.

"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."

EMPLOYMENT LAGS

Employment, housing, and manufacturing has come in stronger over the last couple of months than he expected, and consumer spending has risen 2.7% over the past three months, he noted. That supports his forecast for 7% GDP growth and 3% headline inflation this year.

With the economy picking up and so much support from fiscal and monetary authorities, "there is some upside risk to increased inflation," he said. "We will continue to monitor that closely."

However, the economic recovery has outpaced that of the labor market, as some 8 million to 11 million people are still out of work due to health concerns, a lack of child care or enhanced unemployment benefits, Harker said.

"As the economy continues to reopen, I expect job creation to pick up in the coming months. Given current trajectories, I anticipate the labor force returning to its pre-pandemic trend sometime next summer -- it will be a while, in other words," he said.