Sunday, 19 September, 2021

Fed wants ‘few more’ strong job reports before taper

Fed wants ‘few more’ strong job reports before taper

Popular News

WASHINGTON: A few more strong jobs reports over the coming months would mark enough progress in the recovery from the pandemic to allow the US central bank to begin winding down its bond-buying programme, Federal Reserve Bank of Minneapolis President Neel Kashkari said.

“If we see a few more jobs reports like the one we just got, then I would feel comfortable saying yeah, we are - maybe haven’t completely filled the hole that we’ve been in - but we’ve made a lot of progress, and now, then will be the time to start tapering our asset purchases,” Mr Kashkari said in an interview with Joe Weisenthal and Tracy Alloway on Bloomberg’s Odd Lots podcast, recorded on Aug 9, report agencies.

The Fed is currently holding its benchmark interest rate near zero and purchasing US$120 billion of US Treasury and mortgage-backed securities as part of a program launched last year - at the onset of the pandemic - to support the economy by anchoring longer-term borrowing costs.

Fed officials led by Chair Jerome Powell have said they will continue the purchases at the current pace until the economy has made “substantial further progress” toward their goals for employment and inflation, which many believe will be met in the coming months.

Those expectations were bolstered on Aug 6 by a strong Labor Department report on jobs for the month of July, which showed a second straight month of job creation in excess of 900,000 - bringing the total shortfall in headcount relative to pre-pandemic levels to around six million.

Mr Kashkari, since joining the Fed in 2016, has consistently been one of the central bank’s most dovish policy makers. In June, the last time Fed officials published projections for interest rates, he was one of five on the 18-strong Federal Open Market Committee who expected it would not be appropriate to begin raising rates before the end of 2023.

While the FOMC is only looking for “substantial further progress” toward full employment before it begins winding down its bond-buying programme, it has said it won’t begin raising rates before full employment is achieved.

According to Mr Kashkari, that may mean even higher levels of employment as a share of the population than prevailed immediately prior to the onset of the pandemic.

The employment-to-population ratio for “prime working-age” Americans - those between the ages of 25 and 54 - reached a 19-year high of 80.5 per cent in January 2020. But data on wages and productivity in 2019 and early 2020 were “not suggesting high inflation was around the corner,” Mr Kashkari said.

“I’m not convinced we were actually at maximum employment before the Covid shock hit us. So, that’s exactly why I want us to be really humble about declaring, ‘This is as good as it can get’,” he said.