Fed’s Bostic Plays Down Risk From New Variant, Is Open to Faster Taper
(Bloomberg) -- Federal Reserve Bank of Atlanta President Raphael Bostic played down the risk of a new Covid-19 variant to the U.S. economy and said he was open to scaling back asset purchases at a faster pace to keep inflation in check.
“I am very open to accelerating the pace of our slowdown in purchases,” Bostic, a voter this year on the policy-setting Federal Open Market Committee, told Fox News in an interview Friday. “For me, early second quarter, late first quarter of 2022 are all in play as reasonable alternatives for when we might stop our purchases if the economy’s momentum continues as it has over the last several months.”
Asked if he could see the Fed raising interest rates twice next year, he said that “it’s certainly possible. I don’t take any kind of actions off the table.”
His remarks were at odds with moves in financial markets earlier on Friday amid news of a new coronavirus variant identified by researchers in South Africa. Treasury yields fell sharply and investors dialed back bets on the pace of monetary policy tightening, pushing back the timing of a first 25 basis-point rate increase by the Fed to September from June in interest-rate futures markets.
Investors will get further insight on how the central bank is thinking about the implications of the new variant when Chair Jerome Powell testifies before the Senate Banking Committee with Treasury Secretary Janet Yellen on Tuesday.
Bostic said that the new variant would probably slow the economy somewhat, but the lessons learned during the pandemic indicated that the headwind would be less than in the past.
“We have a lot of momentum in the economy right now,” he said. “That momentum, I’m hopeful, will be able to carry us through this next wave.” But he also cautioned that “all of that is predicated on the idea and the notion that the new variant is similar to delta.”
Friday’s moves in markets go against the recent trend among investors to anticipate the Fed could speed up its removal of support for the economy, after hotter readings on inflation prompted some officials to discuss accelerating the pace of tapering their asset purchases.
Bostic said he expects price pressures to fade as supply disruptions caused by the pandemic ease toward the middle of next year. But there is a lot of uncertainty and the new variant could prolong that process of adjustment.
“The longer this goes on, the longer we’re going to have elevated inflation and the sooner we may need to act,” he said. “We’re going to let the economy and the data that come in really inform how we approach our interest-rate policy, as well as our tapering policy. And we’ll be ready. We’re not going to let inflation get out of control.”
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