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The economy needs more time to recover before the Federal Reserve should start to discuss scaling back asset purchases, said Philadelphia Fed President Patrick Harker on Tuesday.
“I don’t want to change a whole lot until we’re clear of this ditch we’ve dug ourselves into with the pandemic,” Harker said, during a speech to the CFA Society Philadelphia.
The Fed is buying $80 billion of Treasurys and $40 billion of asset-backed securities each month, while keeping interest rates close to zero, in order to stimulate the economy.
Some economists view the easy policy as risky given how strong the economy is recovering from the pandemic. They worry the Fed will ultimately have to raise its policy rate quickly to tamp down inflation.
See: Fed’s easy policy stance is not riskier, Mester says
Harker said he didn’t know when the Fed should start to taper. He said it was important to make more progress on healing the labor market.
“Let’s see how we can start to emerge out of the pandemic, particularly on the labor market, sustainably, and then we can start the process of talking about taper. It’s premature in my view,” Harker said.
So far, since the last Fed meeting ten days ago, only Dallas Fed President Robert Kaplan has publicly said he wants the Fed to start to discuss tapering.
Fed Chairman Jerome Powell has said it was too soon for the Fed to begin “talking about talking about” scaling back the purchases.
The Fed has said it would not taper until it saw “sustainable further progress” on its twin goals of full employment and 2% long-run average inflation.
See: Fed’s Brainard suggests a boom economy is not a sure thing
Stocks were sharply lower on Tuesday with the S&P 500 index
SPX,
and the Dow Jones Industrial Average
DJIA,
both down 1%.
