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The Fed: Harker joins Kaplan in saying the Fed should discuss tapering bond purchases ‘sooner rather than later’

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Philadelphia Fed President Patrick Harker on Friday said he wants the central bank to start talking about when to slow down its bond purchases.

“I am of the camp that sooner rather than later, we should start talking about tapering,” Harker said, during an online discussion hosted by the Washington Post.

Harker’s comments come days after minutes from the Fed’s April meeting released on Wednesday indicated that “a number” of top Fed officials wanted to talk about a plan to eventually scale back some of the easy-money policies that have been in place, including its bond-buying program, since the height of the pandemic in the U.S. back in March and April.

“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes read.

The Fed is currently buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month, along with keeping its policy rates close to 0%, to keep financial markets calm and support the economy.

In December, the Fed said it would keep buying assets until there was “substantial further progress” in reaching the Fed’s goals of a healthy labor market and stable inflation.

So far, Fed Chairman Jerome Powell and a majority of his colleagues have maintained that it is too soon to begin to “talk about talking about” tapering asset purchases. They said it would take “some time” to hit the substantial progress benchmark and the Fed would signal when it was time for such a discussion.

Critics of the go-slow approach like former Treasury Secretary Larry Summers think the Fed should reduce the purchases, a move that would essentially take the foot off the gas given the massive stimulus measures passed by Congress and expectations of strong real GDP growth. Summers said he wanted the Fed to be more alert to risk of the economy overheating. He said that the latest Fed projections showing that it would leave its policy rate until after the end of 2023 was the wrong message to send to financial markets.

Before Harker’s comments, only Dallas Fed President Rob Kaplan had indicated a willingness to begin a discussion of tapering.

During his talk Friday, Harker said that “clearly part of that conversation would be the MBS tapering.” Many economists have questioned the need for the Fed to be buying mortgage-backed securities given the strength of the housing market.

New York Fed President John Williams told reporters earlier this month that the Fed’s mortgage-bond purchases have powerful spillovers into the corporate bond market and other similar types of securities.

Stocks were trading mixed on Friday with the Dow Jones Industrial Average
DJIA,
+0.46%

up 116 points while the tech-heavy Nasdaq Composite
COMP,
-0.19%

was down 44 points.

Despite worries about rising inflation, the yield on the 10-year Treasury note
TMUBMUSD10Y,
1.622%

has been down slightly this week at around 1.62%.

—Elisabeth Buchwald contributed to this article

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