Asset purchases not ‘providing a whole lot’ in jobs recovery

The President of the Federal Reserve Bank of Philadelphia Patrick Harker said Friday that he would rather start reducing the central bank’s monetary stimulus to the economy sooner rather than later.

Harker told Yahoo Finance in an interview on Friday morning that the labor market recovery “still has a way to go” to get unemployed Americans back into jobs. July data showed that almost 6 million people were unemployed compared to pre-pandemic levels.

However, Harker said the job recovery likely doesn’t depend on the central bank’s quantitative easing program, which has been buying trillions of US Treasuries and mortgage-backed securities from agencies since the depths of the pandemic.

“I don’t see this tapering adjustment offering much of a helping hand in solving the unemployment problem,” Harker told Yahoo Finance.

The Fed is currently clocking its purchases at around $ 120 billion a month, a rate that Harker said he would like to slow down soon. “I’d rather start sooner than later and move it forward quickly,” he said.

Federal Reserve Bank of Philadelphia President Patrick Harker will meet in a live interview with Yahoo Finance on August 27, 2021.

The head of the Philly Fed said that once the throttling was complete, the central bank could start thinking about raising short-term interest rates from near zero.

“We have to see politics as a double blow: the throttling and then the Fed’s key interest rate,” Harker said, suggesting that the first rate hike after COVID could come in late 2022 or early 2023.

Divergence in committee

Speaking of inflation, Harker said he expected inflation to stay high amid supply chain disruptions around the world.

Inflation data released by the Bureau of Economic Analysis on Friday morning showed that prices were up 4.2% year over year. This rapid growth rate of the consumer spending index, the Fed’s preferred measure of inflation, has not occurred in over 30 years.

Harker said the price pressures could prove temporary, but expressed concern about the risk that higher prices could end up becoming “more persistent”.

The story goes on

The statements made by the President of the Fed in Philadelphia follow a speech by the Chief of the Federal Reserve’s Monetary Policy Committee, Fed Chairman Jerome Powell. Powell expressed concern about the tightening of policies before the job market had enough time to recover, warning that “such a mistake could be particularly damaging”.

Harker, who is one of 18 members of the Policy Setting Committee, acknowledged that the actual timing of any policy changes must be mutually agreed. Some of Harker’s colleagues, such as Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari, want to wait until September before announcing a cut.

The Philly Fed chief is not a voting member of this year’s committee, which rotates political decision-making votes among regional bank chiefs every calendar year.

“I think we agree that the cut should come sometime this year, as the chairman said,” Harker told Yahoo Finance.

The Fed’s next monetary policy meeting is scheduled for September 21st and 22nd.

Brian Cheung is a reporter who covers the Fed, the economy, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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