Fed officials aren't ready to remove supports yet

Fed officials have said they want to see "substantial further progress" toward their inflation and employment goals.
Fed officials have said they want to see "substantial further progress" toward their inflation and employment goals.PHOTO: AFP

WASHINGTON (NYTIMES) - US Federal Reserve officials on Tuesday (May 11) stood by their strategy of waiting to see further improvement in the labor market and broader economy before removing monetary support, even as some on Wall Street criticized their policies for being too complacent in the face of rebounding growth.

"The outlook is bright, but uncertainty remains, and employment and inflation are far from our goals," Lael Brainard, a Fed governor, said in a speech prepared for delivery before the Society for Advancing Business Editing and Writing. "While more balanced than earlier this year, risks remain from vaccine hesitancy, deadlier variants, and a resurgence of cases in some foreign countries."

Ms Brainard's colleague Loretta Mester, president of the Federal Reserve Bank of Cleveland and historically one of the Fed's more inflation-wary members, struck a similar tone in a Yahoo! Finance interview earlier in the day. Fed officials have said they want to see "substantial further progress" toward their goals - stable inflation that averages 2 per cent over time and maximum employment - before dialing back their US$120 billion (S$159 billion) in monthly bond purchases. Ms Mester reirated that.

"What we want to see, and I certainly want to see, is more progress and broader progress," Ms Mester said, explaining that she wants to see more strength in the labour market, and is expecting to this year.

The comments came as economists try to parse incoming data, including a weaker-than-expected April jobs report, quickly rising inflation expectation measures, and a consumer price report set for release on Wednesday that is expected to show a substantial jump this year. Price gains are picking up as year-over-year measures lap weak data from 2020 and as supply shortages tied to reopening push prices higher.

Policymakers expect real-world price increases to be temporary. Low numbers from last year will fall out of the data, and supply chains for things like lumber and computer chips should eventually readjust, though it is not clear how quickly that will happen.

Ms Mester said she expected supply constraints to ease next year, but noted that "there are upside risks" to her inflation forecast and that she would be watching to make sure consumers and businesses do not come to expect much faster gains.

Likewise, Ms Brainard said that she would "remain attentive to the risk that what seem like transitory inflationary pressures could prove persistent as I closely monitor the incoming data."

Some critics are warning that the Fed's rock-bottom interest rates and emergency bond purchases - policies meant to help bolster the economy in bad times - may be inappropriate, either because they risk fueling higher inflation or because they could spur instability by pushing stock prices and risk-taking higher.

"We're still acting like we're in a black hole, and in fact, the economy is accelerating," Stanley Druckenmiller, chief executive of the investment manager Duquesne Family Office, said on CNBC on Tuesday, after criticising the central bank's policies for risking asset bubbles.

Asked about the comment, James Bullard, president of the Federal Reserve Bank of St. Louis, told CNBC that he thought the response had been good from both lawmakers and monetary policymakers.

"I don't know how many pandemics Stan has lived through," he said. "These don't come along that often."