Fed Official Says Plan to Cut Economic Support Won’t Speed Up Again
John C. Williams, president of the Federal Reserve Bank of New York, said bond-buying would wrap up in mid-March — and that’s appropriate.,
A top Federal Reserve official on Friday suggested he did not expect that the central bank would need to move more quickly to end its bond-buying program than it had already signaled.
“We are ending the program pretty soon,” John C. Williams, president of the Federal Reserve Bank of New York, said during a CNBC interview. He added that he did not see “any real benefit to trying to speed it up further — it’s really about getting our monetary policy stance in a good position.”
The Fed had been buying $120 billion in bonds each month for much of the pandemic, but it announced in early November that it would begin to slow those purchases down in a bid to stop pouring additional fuel into the economy. On Wednesday, it said it would pare the buying back even faster, so that it wraps up by mid-March. That will put Fed officials into position to raise interest rates, their more powerful and traditional tool, without worrying that their two policies are working at odds to one another.
Mr. Williams, who is one of the most central decision makers at the Fed, made his comment at a moment when some economists are asking why the central bank is still buying bonds at all, with inflation so high. But he said the goal with the acceleration was to create “optionality” — the ability to respond to inflation with higher rates if needed — without moving so abruptly that it created disruption in markets.
Fed officials also revised their expected path for interest rates at their meeting this week. Rates are set to near-zero, but the fresh projections showed three increases in 2022 and suggested that the federal funds rate could rise to 2.1 percent by the end of 2024. That would make borrowing for mortgages, care loans and business expansions more expensive, slowing down the economy.
Mr. Williams signaled that the timing and pace of rate increases — which the Fed uses to make sure that growth does not overheat, keeping inflation elevated and potentially causing it to rocket out of control — would hinge on progress in the economy.
“It’s going to depend on the data,” he said, later adding, “I’m pretty optimistic, we are seeing strong improvement in the labor market.”
He said he did not believe that the Fed would be forced to cause a recession to bring inflation down, as has historically been the case — something Lawrence H. Summers, the former Treasury Secretary and current Harvard economist, pointed out in a new column.
Inflation is now at its highest level since 1982, but the drivers behind the burst in prices have been unusual and related to pandemic shutdowns and the subsequent reopening, Mr. Williams said. This makes the dynamics different.
“This is a unique set of circumstances,” he said, pointing to the strange fallout from the pandemic in supply chains that has force durable goods prices higher. He said that historical episodes are “probably not the best guide.”