Federal Reserve officials played down the economic impact of recent stock market volatility, in the latest sign the U.S. central bank is not close to scaling back its massive bond purchases.
"We are still in the middle of a crisis, so it's too early to initiate that discussion," St. Louis Fed president James Bullard told reporters Wednesday, Feb. 3. He said he would "look for leadership from the chair as to when we would want to initiate a discussion about that."
Two other regional Fed presidents — Loretta Mester of Cleveland and Chicago's Charles Evans — also indicated they were comfortable with the current setting of monetary policy.
Mester said it was in a "good spot." Evans saw the Fed "staying the course for a while" and dismissed market swings — highlighted by wild trading in GameStop Corp. — telling reporters "at the moment, I don't see that as a link to macroeconomic borrowing costs for businesses or households."
The Fed left interest rates unchanged near zero last week and repeated its pledge to keep buying bonds at a $120 billion monthly pace until it has made "substantial further progress" toward its goals. Chair Jerome Powell said it's premature to discuss tapering asset purchases with the labor market far from full employment and the economy moderating.
Some critics claim the Fed's ultra-easy monetary policy has helped buoy financial markets by flooding them with cheap money. In her first public effort to address the tumult, Treasury Secretary Janet Yellen has summoned U.S. financial regulators to discuss recent volatility in financial markets.
The meeting will include the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Reserve Board and the Federal Reserve Bank of New York. The other 11 regional Fed presidents will not take part.
Bullard said financial-stability concerns have eased since last spring, when the pandemic took hold in the U.S., and the stock market's recovery reflects investors' more positive view of the outlook for companies. Trading of GameStop would be an issue to be considered by securities regulators, not the Fed, and monetary policy would not be affected, he said.
"I'm not really seeing that right now," he told reporters when asked about increased risks. "Fed policy has been appropriate given the crisis that we are in. I think it has helped to stabilize the economy and put the economy on a recovery path since May of 2020, and that recovery looks poised to continue, possibly very strongly."
He separately told the group that U.S. monetary policy was in a "good place" and he was upbeat about the future economic outlook, arguing that "the U.S. labor-market recovery is about four years ahead of where it was following the 2007-09 recession."
Employment losses from the pandemic have been concentrated in temporary furloughs, and these workers may be called back faster than those who permanently lost jobs, Bullard said. A recall of those on temporary layoffs would bring the unemployment rate down to as low as 4.8% from 6.7%, he said.
Bullard told reporters the unemployment rate could drop to about 4.5% by the fourth quarter. Evans separately said it could fall to around 5% — or maybe a little less — by year-end.
Data released earlier Wednesday showed U.S. companies added more jobs than forecast in January, a sign that the labor market may be gradually improving as COVID-19 infections begin to ebb.
"U.S. monetary and fiscal policies continue to be exceptionally effective in mitigating macroeconomic damage," Bullard said.
While his overall view was optimistic and he predicted a decline in fatalities as vaccinations of the population continue, he also emphasized threats to the outlook from the course of the pandemic.
"Downside risk remains, and continued execution of a granular, risk-based health policy will be critical to maintain economic momentum," he said. "Virus mutation that renders current vaccines ineffective poses a tangible risk to this scenario."
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February 04, 2021 at 08:57PM
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Federal Reserve officials play down wild stocks, see current policy as effective - Crain's Cleveland Business
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