Federal Reserve Bank of Richmond President Thomas Barkin isn’t ready to call for an end to the U.S. central bank’s $120 billion a month in bond-buying stimulus given where the labor market stands today.
When it comes to slowing the pace of asset buying, “if the labor market can clear relatively quickly, then maybe it can happen sooner, but if it takes longer for the labor market to reopen, it goes a little later,” Mr. Barkin said in a Wall Street Journal interview Friday.
The official said he hopes the job market will reach “relatively soon” the threshold the central bank has laid out as a trigger point for pulling back on asset buying.
The policy maker said the employment-to-population ratio is important to him in determining when the central bank can dial back on the stimulus it is providing the economy. This ratio stood at 61.1% in February 2020, before the coronavirus pandemic took hold in the U.S. and economic activity cratered. It bottomed out in April of that year at 51.3% and has risen since, hitting 58% this June. Mr. Barkin said he would like to see something just north of 59% before he believes it would be time to start reducing bond buying.
Fed officials have been debating whether the economy has healed enough to cut back the $80 billion a month in Treasury and $40 billion a month in mortgage bond purchases. Some officials, like Dallas Fed leader Robert Kaplan, want action sooner rather than later, while Philadelphia Fed leader Patrick Harker said in a recent interview he would like the Fed to start slowing the pace of asset buying this year and wind it down over the course of a year.
Some officials, like Fed governor Christopher Waller, have said there is a case to cut back on mortgage bond buying in particular because the housing market is already so strong that the sector doesn’t need more Fed aid.
Mr. Barkin said he saw merits to the different taper strategies under debate but added that a simple process that trims both types of purchases steadily could be easily communicated and understood by markets. That strategy is supported by Mr. Harker.
Mr. Barkin, who doesn’t hold a vote this year on the rate-setting Federal Open Market Committee, declined to say what interest-rate rise forecast he provided at the central bank’s mid-June policy meeting. Then, officials moved forward their collective expectation for rate increases, projecting their short-term rate target will be at 0.6% by the end of 2023, up from today’s near-zero target.
Mr. Barkin said that providing his projected rate-rise date wouldn’t be consistent with the Fed’s framework that says the performance of the economy and not the calendar will determine when rates can rise. When the Fed does meet the job and inflation criteria it has laid out to trigger a rate rise, Mr. Barkin said, “I’m a person who is happy to return to normal rates and embrace and love the normalization” of central bank interest-rate policy.
In the interview, Mr. Barkin said he had been surprised by the surge in inflation this year but agrees with other Fed officials that the rise will likely be temporary, with the jump reflecting supply-and-demand imbalances tied to the economic reopening process.
He warned that just as inflation has surged, there could be another shoe to drop when supply chains and labor markets work out their kinks.
“This pandemic has at least one more chapter to go, because when we get through the current return-to-normal and supply-chain-driven surge [in inflation], there’s going to be a reversion” in price pressures, Mr. Barkin said. Inflation could cool more than expected, he said.