Hawks vs Pigeons: Federal Government Divided When to Dial Back Financial Assistance

Federal Reserve Renewal

Federal Reserve Board of Governors Chair Jay Powell faces an increasing rift among senior US central bank officials as to when to start. Withdrawal A large injection of financial stimulus unfolded at the beginning of the pandemic.

At the onset of the Covid-19 crisis, central bankers united on the need to stop the economic collapse by maintaining low interest rates while buying $ 120 billion in assets each month. However, after the pandemic era was lifted, the US economy recovered and Sharp burst Inflation — Intensifying debate about when to start shrinking bond purchase programs.

Discussions on when to taper asset purchases, a precursor to the final rise in interest rates, began last month and will escalate to the Federal Open Market Committee on Tuesday and Wednesday.

Powell must find a midpoint between central bankers who are pushing for an earlier and more aggressive withdrawal and those who are wary of rapid policy changes. If the Fed chooses a more cautious approach, asset tapering may not occur until early 2022, but it may move in the fall if it feels it needs to act more urgently.

The various camps within the Fed are preparing for a major shift in monetary policy: Powell is somewhere in the middle, leaning towards pigeons, but other Fed officials are more hawkish.


Clockwise from top left: Lael Brainard, Mary Daly, Michelle Bowman, John Williams, Neel Kashkari, Charles Evans © FTmontage; Bloomberg, Getty Images

The Federal Reserve Board’s dovish delegation is premature to consider withdrawing policy support while nearly 7 million people are still absent from work compared to February last year. Claims to be. They believe that inflationary pressures will weaken over time, worries about economic fragility given the surprising spread of deltavirus mutants and low vaccination rates across a wide range of some Republican states and the world. ..

Neel Kashkari of the Federal Reserve Board of Minneapolis, who will not be a voting member of the Commission until 2023, is one of the most dovish. In an interview with Reuters in June, he continued to buy bonds in earnest until the central bank had a much clearer outlook, “to achieve a truly maximum interest rate at least until the end of 2023. Connect. ” employment”.

Governor Michel Bowman, who votes at each conference, takes a similar position, highlighting the vast economic disparities affecting low-income workers and people of color disproportionately and making progress to reach maximum employment. She says it’s hindering.

Another governor, Lael Brainard, and the Fed’s branch chief, John Williams, both voters, have also cast support behind these views.

Mary Daly, president of the Federal Reserve Bank of San Francisco and in a dovish camp, Said recently The Financial Times, where disagreements at the central bank were natural at this stage.

“By definition, turning points are difficult,” she said earlier this month. “There’s some good-looking incoming data. There’s still a risk left … Some people are in different parts of the country, some are looking through different lenses, and everyone comes to the table.”


Clockwise from top left: Raphael Bostic, James Bullard, Esther George, Eric Rosengren, Robert Kaplan, Patrick Harker

Hawkish Fed officials warn not to easily dismiss high inflation data, especially afterwards Latest batch Not only has consumer prices skyrocketed at the fastest pace since 2008, but it has also shown pressure to expand beyond temporary factors such as used car costs.

Hawks said inflation measured by the central bank’s favorite gauge, the Core Consumer Expenditure Price Index, far exceeded the Fed’s long-standing target of 2% this year and next, more than pigeon counterparts would hope for. Also anticipates the need for early monetary tightening. ..

They fear the Fed is at risk of being surprised if inflation takes hold. This will force central banks to tighten policies more rapidly and aggressively, a more disruptive move for the economy and financial markets.

Robert Kaplan, president of the Dallas Federation and one of the loudest members of the camp, insisted that the central bank soon begin dialing down bond purchases.

He is also a key supporter of the rapid reduction in mortgage-backed securities purchases. The booming housing market.. Indeed, more hawkish officials claiming early tapering often point to financial stability concerns as one of the reasons for acting early rather than later.


Clockwise from top left: Randal Quarles, Tom Birkin, Richard Clarida, Loretta Mester, Jay Powell, Christopher Waller

At the same time, the Federal Reserve Board of Governors acknowledges the strength of economic recovery and the risk of excessive inflation, as well as the uncertainty of the outlook and the risk of a recession in other Covid-related activities.

They also emphasize that given the risks on both sides of the economic debate, they will be more flexible depending on how the data looks in the coming months.

They are not very convinced of the need to immediately reduce the Fed’s support, but at a very slow and well-explained pace, they accept that the conditions for initiating adjustments will soon be met. increase.

The Federal Reserve Board’s leadership is in line with this view. Like Vice-Chair Richard Clarida, Powell is on the more dovish side of centrism, but Director’s Vice-Chair Randal Quarles may be a little enthusiastic. Follow the taper, according to Federal Reserve Board watchers.

“It would be a mistake to act prematurely,” Powell said at a recent parliamentary hearing. “In any case, we are not going into a period of high inflation over the long term, of course, because we have the tools to deal with it, but in ways that are unnecessary or hinder the economic recovery. I don’t want to use. “

Hawks vs Pigeons: Federal Government Divided When to Dial Back Financial Assistance

Source link Hawks vs Pigeons: Federal Government Divided When to Dial Back Financial Assistance

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