Fed hawks circle before Powell speech

WASHINGTON (Reuters) – The U.S. Federal Reserve’s hawkish wing used the day before a marquee speech by Fed Chair Jerome Powell to urge the central bank to begin paring bond purchases they feel have become ineffective, it not downright harmful.

FILE PHOTO: Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

“We probably don’t need the asset purchases at this point,” St. Louis Federal Reserve president James Bullard said on CNBC on Thursday, repeating his call for the Fed to start trimming its $120 billion in monthly bond purchases soon and end the program by early next year.

Rising home prices, for example, “are a concern…You don’t want to be too complacent,” Bullard said. “There is some worry that we are doing more damage than helping,” by continuing to buy mortgage-backed securities that hold down borrowing costs and arguably support even higher asset values.

Both Bullard and Kansas City Fed president Esther George, in a separate appearance on Fox Business, indicated the central bank was making steady progress toward a plan to cut the bond purchases.

Bullard said the Fed was “coalescing” around a plan, and George that she expected there would be more information coming after the Fed’s Sept. 21-22 meeting.

With strong inflation and expected continued job growth “there is an opportunity to begin to dial back on asset purchases,” George said, with her preference being that the process start “sooner rather than later.”

Bullard and George are among a group of Federal Reserve officials ready to start the bond taper soon. Another, Dallas Fed president Robert Kaplan, is scheduled for a television appearance later Thursday.

Their comments precede remarks by Powell on Friday that will provide an update on the economy, and likely touch on how the Fed views the competing risks of higher inflation against the possibility that a new surge of virus cases slows the U.S. economic recovery in a meaningful way.

Fed officials at their July meeting agreed it would likely be time to taper the bond purchases by later this year, and most analysts feel there is little difference to the economy if that process starts in any given month.

But the announcement of a plan will send a strong signal that the Fed feels the risks from the pandemic have receded enough to start reducing the extraordinary support rolled out in March 2020 to stave off a collapse.

It’s a bit of communications the Fed wants to get right, and some have argued that is cause for a bit more patience.

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