The Federal Reserve should be open to talking about slowing down its asset purchases at a faster pace at its next meeting in mid-December, Atlanta Fed President Raphael Bostic said Monday. “I think there are good arguments to be made that we really should be considering how fast we execute the taper,” Bostic said in an interview on Bloomberg Television.
A faster pace of tapering would give the Fed the option to “lift off,” or raise short-term interest rates, sooner than expected. The Fed has kept short-term rates close to zero since the worst days of the pandemic. At the moment, the Fed is buying $105 billion of Treasurys and mortgage debt, and is reducing the pace of purchases by $15 billion each month. At the current pace, the purchases will end next June. Most economists say the Fed won’t hike short-term interest rates until it has ended its asset-purchase program entirely. A number of Fed officials have said they either support tapering at a faster pace or at least are open to the discussion. “It is appropriate to us to be talking about the pace of tapering and being open to a faster one,” Bostic said. The Atlanta Fed president said he expected further strong inflation readings. If the employment numbers come in equally strong, “I think the case would be much stronger for a faster taper,” he said. The Labor Department will release the November job report on Dec. 3. The economy added 531,000 net jobs in October and the unemployment rate fell to 4.6%. Regarding interest-rate moves, Bostic said he has felt for several months that it would be appropriate to raise short-term interest rates once during 2022. Fed officials have been evenly split on whether there would be any rate moves next year. In Monday’s interview, Bostic said he welcomed President Joe Biden’s decision to give Fed Chairman Jerome Powell a second four-year term, and make Fed Gov. Lael Brainard his No. 2. Both nominations are subject to Senate confirmation. Bostic said the decision announced by Biden “really does take some uncertainty out” of the equation and allows the Fed to spend 100% of its attention on “trying to discern what’s happening to the economy.” Many Fed watchers think Biden might decide to tap Bostic to be the central bank’s top supervisor of the banking industry. There will be three vacancies on the Fed’s seven-member board once Powell and Brainard are confirmed. Asked about the possibility, Bostic said only that he has no trips to Washington on his calendar. The yield on the 10-year Treasury
rose eight basis points to 1.63% in the wake of Biden’s decision to reappoint Powell, as investors thought it removed one hurdle for central-bank tightening.