A member of Fed Chairman Jerome Powell’s inner circle said Thursday he does not think the central bank should start to slow down its asset purchases but said he is open to talk about future moves.
“I just don’t think the time is now to take any action,” Williams said, in an interview with Yahoo Finance.
The Fed is purchasing $80 billion of Treasurys and $40 billion of mortgage-backed securities each month, along with keeping its policy interest rate close to zero, to support the economy as it reopens after the pandemic. The Fed has said it won’t start to slow down the purchases until the economy had made “substantial further progress” towards the Fed’s goals of full employment and stable long-run 2% inflation.
“Right now, we’re not near the substantial further progress” benchmark, Williams said.
When asked last month about tapering its asset purchases, Powell often said the Fed wasn’t even “thinking about thinking about” slowing down the asset purchases. But this has changed in the past six weeks.
A number of Fed officials have said they would welcome a discussion about tapering. Dallas Fed President Robert Kaplan has said he thinks the economy will soon meet the Fed’s progress benchmarks needed to begin slowing down purchases.
Even Williams, in the Yahoo interview, said he was open to a discussion about slowing down the purchases.
“I think we should be thinking through through all of the issues around the economic recovery and thinking about policy options of the future,” Williams said.
Krishna Guha, a former top Fed staffer and now vice chairman of Evercore ISI, said Williams’ comments “suggest to us that the Fed could begin what we expect will be protracted QE tapering discussions as early as the upcoming June FOMC meeting, and if not will do so by July.”
“We read this comments as somewhat hawkish, though they are very consistent with our general expectations for the timeline to tapering,” he added, in a note to clients.
Critics say the Fed is running an easy money policy even though the economy is booming. They worry this will lead to an outbreak of inflation that will cause the Fed to tighten policy quickly.
Williams downplayed recent high inflation readings, saying “a big chunk” of the gains came were caused by low inflation readings from last spring dropping out of the calculation for the annual inflation rate, reversals of price declines, and price gains in some special sectors, like used cars, where prices are rising due to high demand and short supply.
He noted that the “trimmed mean” price indexes produced by the Dallas and Cleveland regional Fed banks — and are designed to remove volatile monthly price moves — are still showing “moderate increases in prices.”
The Fed is watching the inflation data closely, he said.
“We don’t want inflation to be too much above our 2% goal. We want it to average 2% over time,” Williams said.
The New York Fed president said the economy is in an “extraordinary” situation as it reopens and Americans are vaccinated. It is hard to predict from month-to-month but “the overall picture is very positive.”
Williams comments come ahead of the next Fed policy meeting on June 15-16.
were set to have a mixed open Friday as investors waited for the May employment report to be released later in the morning.