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Fed officials ponder taper talk as economy bounces back

Some Federal Reserve officials are ready to start talking about pulling back the central bank’s aggressive policy support.

On Wednesday, Philadelphia Fed President Patrick Harker said “it may be time to at least think about thinking about tapering” the Fed’s asset purchase program. Since the depths of the pandemic, the program has been snatching up about $120 billion in Treasury bonds and mortgage-backed securities each month.

Dallas Fed President Robert Kaplan and Fed Governor Randal Quarles are among the other Fed officials that have similarly voiced their interest in taking the first step toward paring back its easy money policies.

Those discussions would be taking place in the midst of what could be the fastest economic recovery on record, as the vaccine rollout revives the U.S. economy back to life.

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The Fed on Wednesday released a report noting that economic activity across the country expanded at “a somewhat faster rate” than it did earlier in the spring. In the so-called Beige Book, several regions of the country reported bounce backs in some of the hardest hit industries, namely leisure, travel, and restaurants.

Still, Fed officials say the economy is not yet back to pre-pandemic form.

“It may take more time to reopen a $20 trillion economy than it did to shut it down,” Fed Vice Chairman Richard Clarida told Yahoo Finance on May 25.

Time to taper?

Fed officials have made it clear that they do not need to wait for the economy to fully recover to start slowing its asset purchases. Instead, the central bank has said it would begin pulling back once the economy looks like it is making “substantial further progress” toward its dual mandate goals of price stability and maximum employment.

On price stability, inflation has already arrived. The Beige Book noted supply chain crunches on manufacturers, construction companies, and homebuilders across the country.

But Fed officials speculate that those price pressures will prove to be largely temporary, adding that if inflation gets out of control they can hit the brakes through interest rate hikes.

The bounce back has been comparably slower in the Fed’s other domain of interest: the labor market.

As of April, there were still over 8 million fewer people at work compared to pre-pandemic levels. Jobs mismatches, fears about contracting the virus, childcare, and unemployment insurance have all been cited as reasons. The Beige Book observed that higher wages are becoming a tool for bringing workers back.

The Federal Reserve Bank of Cleveland, for example, noted that a staffing company was unable to find workers willing to return to work for any job paying less than $13 an hour.

Richmond Fed President Thomas Barkin wrote in a post Wednesday that he will be interested in monitoring the progression of employment over the “next several months” as it relates to wages.

With the labor market recovery still in progress, Harker noted that any pullback in Fed support would be done slowly.

“We will remove accommodation carefully and methodically as the economy continues to strengthen,” Harker said.

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

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