St. Louis Fed President Says Central Bank Could Discuss Tightening Policy With 75% Of People Vaccinated

Topline

In a rare public comment regarding the central bank’s closely-watched plans for easing off its coronavirus crisis policies, St. Louis Federal Reserve President James Bullard said Monday that the Fed could begin having discussions about tapering its $120-billion-per-month bond buying program once 75% or 80% of the U.S. population has been vaccinated—a milestone he said would indicate that coronavirus crisis was nearing its end.

Key Facts

In a Monday interview with Bloomberg TV, Bullard emphasized that it’s still too early for the Fed to begin easing off its accommodative policy right now. 

His comments come amid fears that trillions of dollars in stimulus spending coupled with pent-up consumer demand will overheat the economy and trigger runaway inflation. 

That translates to pressure for the Federal Reserve, which has repeatedly emphasized that it is not concerned about a short-term uptick in inflation, to step in and assuage investor fears sooner than it planned.

The Bureau of Labor Statistics will report consumer price data for the month of March on Tuesday, and investors will be watching the report closely for signs that inflation is rising to dangerous levels.

It’s possible that unusually low prices in the spring of 2020 will distort year-over-year measures of price growth. 

Bullard did not discuss when the central bank might raise interest rates (something most experts expect won’t happen until 2023 at the earliest).

Crucial Quote

“We want to stay with our very easy monetary policy while we are still in the pandemic tunnel,” Bullard said. “If we get to the end of the tunnel, it will be time to start assessing where we want to go next.”

Big Number

36.4%. That’s the portion of the U.S. population that had received at least one dose of a vaccine as of April 12, according to the Centers for Disease Control and Prevention. The CDC said 22.3% of the population is now fully vaccinated. 

Key Background

At the onset of the coronavirus crisis last spring, the Federal Reserve slashed interest rates to near zero levels (targeting a range between 0.0% and 0.25%) and announced it would purchase $700 billion in government debt in an attempt to stabilize a stock market that had just seen its worst losses since 1987. A year later, the central bank has repeatedly said it will not raise rates any time soon. And despite clear signs of an economic rebound, it said last month that it plans to continue buying $120 billion in bonds per month to help prop up that market. 

Tangent 

Analysts from Bank of America last month laid out three factors that make them confident tighter Fed policy won’t jeopardize the economic recovery. First, there’s more stimulus spending on the way in the form of President Biden’s $2+ trillion infrastructure plan. Second, the Fed has been very clear that it isn’t planning a rate hike any time soon. Third, history shows that the economic recoveries tend to build enough momentum to be self-sustaining even after fiscal and monetary support tapers off. 

What To Watch For

In a research note last week, OANDA senior market analyst Edward Moya suggested that if signs that prices are rising pile up over the coming months, Treasury yields could surge and prompt the central bank to alter its policy. “It might take a couple of months, Moya wrote, “but the Fed could be forced to alter their purchases, increasing the weighing to more Treasuries and less mortgage-backed securities.”

Further Reading

Here’s Why The White House Isn’t Worried About Inflation (Forbes)

The Economy Doesn’t Need The Fed’s Easy Monetary Policy To Keep Booming, BofA Says (Forbes)

Inflation—Not Covid-19—Is Now The Biggest Risk To Markets, Bank Of America Survey Shows (Forbes)

Fed Chair Powell Warns That Cyber Attacks And Covid-19 Spreading Again Are The Biggest Risks To The Economy (Forbes)

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