Fed policy makers reject QE phase-down talks By Reuters

By Ann Saphir and Howard Schneider (Reuters) – Despite optimism about vaccines and the likelihood of further fiscal stimulus under the incoming Biden administration, the Federal Reserve is sticking to its super-easy monetary policy, officials made clear Wednesday. . “The economy is a long way from our targets in terms of employment and inflation,” Fed Governor Lael Brainard told the Canadian Association for Business Economics. “Given my baseline perspective, I expect the current buying pace to remain appropriate for quite some time.” The Fed is adding Treasuries and mortgage-backed securities to its balance sheet at a rate of $ 120 billion a month, and has vowed to continue to do so until it sees “additional substantial progress” toward its full employment targets and inflation of the 2%. “Even under an optimistic outlook, it will take time to make further substantial progress,” Brainard said, adding that the purchases are supporting the recovery and “we are ready to increase those amounts if we judge it justified.” St. Louis Fed President James Bullard said that while the job market has improved dramatically, there is still a long way to go. “Certain sectors have been severely affected, and for them to return, we will have to implement this vaccine,” Bullard said in an interview at the Reuters Next conference. For the economy as a whole, “there may be a boom … but let’s wait and see if that really happens.” The comments may reset expectations among bond market participants and investors who have raised bets in recent days that the central bank could cut its bond purchases before the end of the year. They have done so in part because the election of two Democratic senators from Georgia last week gives the party of the incoming Biden administration control of both the Senate and the House of Representatives. JP Morgan economists say that sets the stage for a new $ 900 billion stimulus package in the coming months, on top of the $ 892 billion package approved last month. The additional cash for households, businesses and others increases the chances that the economy will meet the Fed’s “additional substantial progress” bar, allowing the drawdown to begin “by the end of the year,” they wrote last week. . Expectations for the downsizing also picked up steam after Atlanta Fed Chairman Raphael Bostic and Dallas Fed Chairman Robert Kaplan said in recent days that they expect an economic surge later this year that it could allow the Fed to start reducing purchases. NOW IS NOT THE TIME Analysts said the time was not yet right to set the stage for a pullback in asset purchases. “I think it’s just a mistake” to start pointing to a decline, said Joe Gagnon, a senior fellow at the Peterson Institute for International Economics and a former Fed staff economist. A new pandemic aid package could certainly boost the economic outlook, he said, and “it’s not unreasonable to start thinking internally about this, but I don’t know what the rush is to speak publicly about it.” Minutes from last month’s policymaking meeting showed that the Fed’s policymakers want to inform investors “well in advance” of any plans to begin withdrawing bond purchases. That stance, analysts say, is likely motivated by a desire to avoid bad markets or to somehow repeat the “taper tantrum” of 2013, when bond yields rose in response to the unexpected signal from the market. Fed Chairman Ben Bernanke that the Fed could cut bonds. purchase. The episode eventually delayed the Fed’s eventual reduction in asset purchases and the takeoff of rates. In recent weeks, bond yields have risen modestly, though not enough to worry Fed policy makers. Still, Cornerstone macroeconomist Roberto Perli called the phenomenon a “mini” gradual tantrum. , calling the comments on the reduction in bond purchases “extremely useless for the credibility of the new Fed framework.” Fed Chairman Jerome Powell speaks Thursday and may well “reinforce this message … by reiterating the large target gap and a consistent policy focus on the fly without early consideration of a policy transition in response to better fiscal prospects, “wrote Evercore ISI Vice President Krishna Guha. Still, if the government delivers a big fiscal package and vaccines continue to be implemented successfully, the Fed’s policymakers could deliver a “strong downsizing signal” for the June meeting, said the Jefferies economist. NYSE :), Aneta Markowska, a long time to get markets ready for a drawdown at the end of the year if necessary.