New York Fed Chief Says Appropriate for US Central Bank to Start Stimulus Taper in 2021

NEW YORK (Sputnik) - The appropriate time for the US central bank to start tapering the stimulus for the US economy may be later in 2021 if the economic recovery remains on track as anticipated, Federal Reserve Bank of New York President John Williams said Wednesday.

“Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year,” Williams said. “I will be carefully assessing the incoming data on the labor market and what it means for the economic outlook, as well as assessing risks such as the effects of the Delta variant.”

The Federal Reserve has been buying $120 billion in bonds and other assets since the COVID-19 outbreak in March of 2020 to support the US economy. The central bank has also been keeping interest rates at near zero for the past 18 months.

Critics have blamed the stimulus program for aggravating price pressures in the United States, where economic growth for the second quarter of 2021 was estimated to be at 6.6 percent on Thursday - above the 3.5 percent decline noted for all of 2020. The Federal Reserve has projected economic growth to be 6.5 percent for all of 2021.

The Federal Reserve’s preferred gauge for inflation - the core Personal Consumption Expenditures (PCE) Index, which excludes volatile food and energy prices - rose 3.6 percent in the year through July, its most since 1991. The PCE Index including energy and food rose 4.2 percent year-on-year.

The Federal Reserve’s own target for inflation is 2 percent per year.

The question of when the Federal Reserve ought to taper its stimulus and raise interest rates has been hotly debated in recent months as economic recovery conflicts with a resurgence of the coronavirus’ Delta variant. The argument for a taper was, however, weakened considerably after US jobs growth for August came in at 70 percent below the economists’ target.

Williams suggested in his speech on Wednesday that the central bank should pay as much attention to price pressures as to the labor market.

“Inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time,” he said. “There is still a long way to go before reaching maximum employment, and over time it should become clearer whether we have reached 2 percent inflation on a sustainable basis.”