July 15, 2021
In an interview on Bloomberg TV, St. Louis Fed President James Bullard spoke about tapering the Fed’s $120 billion a month of bond purchases, staying flexible to address inflation, and the growing economy.
The current economic outlook is quite different from last year’s, Bullard noted. Pointing out that real GDP growth is projected at 7% and financial markets appear to be functioning well, he said the Fed is in a situation in which it can taper. The question of tapering is going to be debated in earnest at the Federal Open Market Committee meeting in July, he added.
The FOMC must consider a number of things, such as timing, the mix of bonds purchased, and the pace of tapering, Bullard said. But the most important thing is not being on automatic pilot in this situation, he said.
“I don't think we have the luxury of being able to just go onto automatic pilot and say that we're never going to change the pace of purchases,” Bullard said, adding that the Fed will need to have some optionality on the upside with respect to possible inflation shocks.
The FOMC economic projections are predicting 3% core PCE inflation, excluding food and energy prices, Bullard noted.
“That's more inflation than we've seen in a long time in the U.S., and I think some of that will hang on and persist through 2022,” he said.
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