Fed’s Mester says asset purchases could continue all year even if economy strengthens in second half

Economic recovery may be ‘uneven’ in 2021, but Fed policy can likely stay unchanged, Mester says

Cleveland Federal Reserve President Loretta Mester said Tuesday the central bank could continue its $120 billion per-month asset purchases through all of 2021 even if the economy improves in the second half of the year.

In a discussion with reporters, Mester noted that the Fed agreed in December that asset purchases would continue until there is substantial progress in meeting its twin goals of low unemployment and a 2% annual inflation rate.

Mester said “substantial progress” might not be reached even with a second-half economic recovery.

“Even if we get a strong second half of the year, I don’t really anticipate that we’ll necessarily be at that substantial progress,” Mester said.

“We’ll have made some progress, but I probably want to see a little more,” Mester said.

Mester said she is expecting “a pretty weak first couple of months of the year” and then improvement as more Americans get the COVID-19 vaccine.

Even with these ups and downs, Mester said Fed policy is in the right place.

Read: Mester sees uneven 2021

The Fed has lowered its benchmark interest rate to zero and added $3 trillion of asset to its balance sheet.

“I’m happy with the way that policy is calibrated right now,” she said.

On Monday, Atlanta Fed President Raphael Bostic said a bond-buying recalibration could happen in 2021.

The Fed is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities every month.

Mester said there could be tapering of the bond buying program if there is a stronger second half than she expects.

“Its really dependent on what you see from the economy. I would like us to taper asset purchases next year but it really depends on the economy,” she said.

U.S. stocks edged higher Tuesday after suffering larges losses on Monday. The Dow Industrial Average

was up 17 points in early trading.

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