Fed Vice Chair: "The Time to Start Discussing Tapering Will Soon Come"

Expected Discussion on Vice Chair Quarles' Reduction of Asset Purchases
Focus on Tetering Following Vice Chair Clarida
"It's Too Early to Raise the Benchmark Interest Rate"

Randal Quarles, Fed Vice Chairman
Photo by Reuters Yonhap News

[Asia Economy New York=Correspondent Baek Jong-min] Randall Quarles, Vice Chairman of the Federal Reserve (Fed), stated that if the economic recovery meets expectations, the time to discuss tapering of asset purchases will be approaching. As key Fed officials have consecutively hinted at tapering, the reduction of asset purchases appears to be a foregone conclusion.

Vice Chairman Quarles attended a seminar hosted by the Brookings Institution on the 26th (local time) and said, "If the U.S. economy shows the strong momentum currently expected, it will be time for Fed members to consider slowing the pace of bond purchase stimulus."

He assessed himself as optimistic about the economy and predicted, "The U.S. economy will grow rapidly until it slows down next year." Regarding inflation, he forecasted, "It will temporarily exceed the 2% target, but we do not expect the inflation seen in the 1970s."

Vice Chairman Quarles is in charge of bank supervision. The fact that Quarles, who rarely comments on monetary policy, also hinted at the possibility of tapering shows that opinions on tapering are spreading within the Fed.

One day earlier, Richard Clarida, Fed Vice Chairman, also said in an interview with Yahoo Finance, "When the time comes, we will be able to start discussions about reducing the pace of asset purchases."

When asked why the Fed is purchasing mortgage-backed securities amid soaring U.S. home prices, Vice Chairman Quarles said, "We will definitely take a close look at this issue when we review asset purchase policies." This suggests that the tapering of asset purchases may begin with mortgage-backed securities rather than Treasury bonds. The Fed is currently purchasing $80 billion in Treasury bonds and $40 billion in mortgage-backed securities monthly.

The Wall Street Journal (WSJ) reported that Vice Chairman Quarles also agreed with the committee members who believe tapering discussions are necessary. Quarles expressed a cautious stance on early interest rate hikes, stating, "The timing of future rate increases is far off, and monetary policy will remain accommodative for a long time."

Regarding the Fed's mention that "additional progress in employment" is needed for changes in monetary policy, Vice Chairman Quarles believes this needs to be supplemented. He pointed out, "The phrase 'additional progress' lacks specificity, causing communication difficulties." He also explained that the Fed has not yet begun to quantify the criteria for additional progress and that current employment indicators are insufficient to achieve further progress toward maximum employment goals.