Fed Officials Thinks the Time for Tapering Has Come

More Federal Reserve officials have come forward with calls for monetary policy normalization and scaling back the highly accommodative easing policies of record-low interest rates and massive asset purchases, as the U.S. economy continues to show recovery signs and higher inflation rates.

On Wednesday, both Kansas City Fed President Esther George and Dallas Fed President Robert Kaplan were the latest to express this view, calling for ending the bond-buying program.

“With the recovery underway, a transition from extraordinary monetary policy accommodation to more neutral settings must follow,” said George in a speech to the National Association for Business Economics

“The time has come to dial back the settings.”

“I support bringing asset purchases to an end under these conditions.”

Meanwhile, Kaplan said that a decision on tapering is needed in the next Federal Open Market Committee (FOMC) meeting in September to come into effect in October.

“It would be my view that if the economy unfolds between now and our September meeting. If it unfolds the way I expect, I would be in favor of announcing a plan at the September meeting and beginning tapering in October.”

Many Fed officials estimated that the economic conditions might be suitable for a change in policy soon, with the achieved substantial further progress, but none saw that as early as October.

“The reason I’m saying we ought to begin the tapering soon is I think these purchases are very well equipped to stimulate demand. But we don’t have a demand problem in the economy,” Kaplan told CNBC.

“My thought is I’d rather take the foot off the accelerator soon and reduce the RPMs.”

“What I don’t want to do is keeping running at this speed for too long and then we’re going to have to take more aggressive action down the road.”

President of the Federal Reserve Bank of Atlanta Raphael Bostic said on Monday that the Fed should begin tapering the massive asset purchases following two consecutive months of strong job creation. He believes moving from the current accommodative stance to a more normal policy should be faster than previously thought.

On the other hand, Fed Governor Christopher Waller said last Thursday that economic recovery is progressing with the labor market showing improvement signs, which could lead to scaling back the accommodative monetary policy soon.