Fed Taper: Hawks vs. Doves

Over the past few days, a number of Fed officials have given testimonies and shared their thoughts on the Fed taper issue. So far, it seems that more policymakers favor a reduction of bond purchases sooner rather than later. Here’s a quick recap of what Fed officials have been saying:

James Bullard (FOMC voting member)

In his speech last week, St. Louis Fed President Bullard spoke of the recent improvements in the labor market and the risk of asset price bubbles – both of which support the case for tapering as early as possible. He mentioned that reducing bond purchases would still leave monetary policy accommodative enough to support the economic recovery.

Charles Plosser (FOMC non-voting member)

Philadelphia Fed President Plosser echoed Bullard’s view in saying that the impact of the recent government shutdown on overall economic performance is minimal and that the economy is still rebounding. He expressed an optimistic outlook for growth but also cautioned that inflation could spike if bond purchases aren’t reduced in time. Take note that, while Plosser is not a voting member for the December policy decision, he will be a voting member by January 2014.

Richard Fisher (FOMC non-voting member)

According to Dallas Fed President Fisher, the Fed should resume its normal operations as soon as it can. He blamed the government’s inefficient fiscal policy for the recent slowdown in the economy, but reiterated that the economy needs to transition back to being interest rate driven at the earliest possible time. Similar to Plosser, Fisher may not be a voting member in December but he is also set to vote on monetary policy by next year.

Jerome Powell (FOMC voting member)

Fed official Jerome Powell, on the other hand, hinted that the U.S. central bank is likely to retain its current easing program for quite some time. He pointed out that any reduction in bond purchases would be data-dependent and that the taper schedule is still uncertain at this point.

Eric Rosengren (FOMC voting member)

Lastly, Boston Fed President Rosengren also expressed his preference to keep bond purchases unchanged for the meantime, as the U.S. economy has been unusually weak lately. Rosengren said that, despite the recent improvements in the jobless rate, there are still plenty of external threats that could derail the slow economic recovery. He even projected that the U.S. economy will not reach full employment until 2018!

There you have it, ladies and gents! It appears we have three Fed officials supporting an early taper, two of which are non-voting members in December but will vote in January next year. On the flipside, we have a couple of FOMC voting members inclined to keep bond purchases unchanged until a significant recovery is seen.

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  • ah so, thats inflation, and here i was measuring the cost of life by the price of one loaf of bread versus income for as long as ive been thinking about that … i guess i wasnt that far off then

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