Kansas City Fed President Esther George told CNBC that the economy has reached the point where the central bank can begin withdrawing the cash it has provided.
First of all, the Fed will slow down the pace of its monthly security purchases in a process known as tapering. Although George didn’t set a specific date when she thought this process should begin, she hinted that it would come soon.
“I think that’s appropriate given the progress we’ve seen,” CNBC’s George Steve Liesman said in an interview that aired on Squawk Box on Thursday. “That doesn’t mean we’re going to move to neutral or tighter policies, but I think it’s a first step. The signs in the economy right now show we’re getting to that point.”
Officials have set the standard for “significant further progress” as the point at which they will consider tightening monetary policy, which includes keeping reference rates close to zero.
George said advances in the labor market, as well as the continued rise in inflation, showed her the Fed can begin to pull back on the crisis-time measures it took.
“If you look at the job growth last month, the month before, if you look at the current level of inflation, I would think that the level of housing we are currently offering is probably not needed in this scenario,” she said “So I would be ready to talk about tapers sooner rather than later.”
George spoke at the Fed’s annual Jackson Hole Conference hosted by the Kansas City Fed. In a last-minute changeover, she decided to make the symposium virtual, as Covid-19 cases in the region have increased.
The conference often brings about major policy developments, and this year there will likely be extensive discussions on tapering.
Reducing the $ 120 billion monthly bond purchase minimum is the first step in the streamlining process; Next, interest rates would go up.
Like other Fed officials, George said the interest rate issue would be another day to come as the Fed monitors the effects of any possible tightening and looks at economic data to see if it moves forward. Some of the metrics have weakened a bit over the past few weeks, reflecting a possible slowdown from Covid-related impacts.
“Watching all of these carefully will obviously signal when it is time for a rate hike,” said George, who indicated that a hike through the end of 2022 could be warranted.
She added that while the Delta variant of the virus is being watched, she does not think it will have a major impact on the economy.
“Both the anecdotes I hear from our contacts in the area and the data so far show no significant change in the outlook,” said George.
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