In separate appearances, Cleveland Fed President
The comments came days after Fed Chairman
“I support starting to taper our purchases in November and ending them during the first half of next year,” Mester said during an event hosted by the
“The justification for continuing to increase our asset holdings each month has diminished,” George said in remarks to the
Both events were held online, highlighting the continuing scourge of the coronavirus pandemic that plunged the economy into its sharpest and shortest recession last year and still keeps labor and raw materials below what’s needed to satiate growing demand for both as the economy recovers.
That led to inflation above the central bank’s 2% target that policymakers like Mester and George worry could become persistent.
UNRAVELING THE DEBATE
The hawkish comments from both policymakers begin to unveil some contours of the debate that took place behind closed doors at this week’s Fed meeting, after which Powell signaled that the tapering of asset purchases will probably end by the middle of next year.
Powell noted that the Fed’s criteria for raising its near-term policy rate have not yet been met. Those conditions include inflation remaining durably at the central bank’s 2 percent target and maximum employment having been reached.
Half of Fed policymakers feel the economy will have reached that benchmark by the end of 2022, and Mester said Friday that he is among them.
George, meanwhile, pointed to the next debate for the Fed: what to do with its nearly
Monetary expansion of those massive holdings “will persist even when ‘tapering’ is complete,” George said. Pointing to his long-standing concern that keeping interest rates near zero risks both inflation and financial stability, he said, “I don’t want to be lower for any longer than we need to be.”
Finding the right level for the interest rate, given the continued stimulative effects of the balance sheet, will be a challenge, according to George.
“Where on the yield curve would we prefer to have more room for monetary policy?” said George, conjecturing that the Fed might want to keep long-term interest rates low by maintaining its large balance sheet, but countering that stimulus with a higher short-term interest rate.
That, however, could raise the risk of an inverted yield curve, an argument for shrinking the balance sheet “or at least shifting to one with shorter maturity assets, with a lower neutral policy rate.” (Reporting by