The Fed’s Williams means that the discount in bond purchases might start even when employment slowly will increase.
John C. Williams, the president of the Federal Reserve Bank of New York and a powerful monetary policy official, hinted on Wednesday that it may be possible that the central bank will begin tearing down support to the economy before the end of the year, even if the labor market is growing only sluggishly in the coming months.
The Fed buys $ 120 billion worth of government bonds every month to help the economy by keeping interest rates low and keeping money flowing. Policy makers have discussed when to start slowing this program. They said in December that they would not do so until they made “significant further strides” toward maximum employment and inflation averaging 2 percent over time.
Key policy makers have made it clear that the inflation side of that target has been met with prices soaring this year, but they have waited for further advances in employment. The assessment of the labor market has been made more difficult by the rising coronavirus infections in connection with the Delta variant and wage increases have slowed in August.
Williams, who constantly votes on monetary policy and is one of the central bank’s twelve regional decision-makers, told reporters Wednesday that he was looking at cumulative employment progress rather than monthly changes – suggesting weakening employment growth would not mark the start of the so-called taper make absolutely impossible.
“It’s not a speed requirement,” said Mr. Williams. “It’s really about where are we relatively on this way back to maximum employment?”
He added that he paid attention not only to job growth, but also to measures such as labor force participation in order to get a “complete picture” of progress in the labor market.
“Some months come stronger, others less strong,” said Williams. “It’s really about accumulation.”
He added, “We’ll have to wait and see how the data comes in.”
Mr Williams said in a speech earlier that day that if the economy continues to recover as expected, “it may be appropriate to slow the pace of asset purchases this year”. Pulling back on bond purchases will only be a first step in removing support, and the Fed’s policy rate is expected to stay near zero for some time to come.
His comments came just as the Fed released its latest anecdotal survey of business contacts in its regional districts, commonly known as the Beige Book. “Delta” was mentioned 32 times as employers reported that “growth slowed slightly to a moderate pace in early July through August”.