A top Federal Reserve official said the central bank will need to decide on how to communicate its intentions to continue buying government assets but that broader changes to its policy stance, including by altering those purchases right now, weren’t needed.
In an interview Tuesday, Dallas Fed President Robert Kaplan said after getting through what he expected would be a difficult three-to-six month period for the economy due to the resurgence of coronavirus cases, officials need to “start thinking about how we want to begin to taper or communicate the composition and the size of our asset purchases.”
The Fed bought hundreds of billions of dollars of Treasury and mortgage-backed securities between March and June to stabilize dysfunctional markets, and it has continued buying $120 billion a month in those assets to maintain smooth functioning and hold down long-term interest rates to support the economy.
Officials at their meeting last month said they expected those purchases to continue over the coming months, and minutes of the meeting released last week showed they discussed providing more information as soon as their next meeting, Dec. 15-16, around how long they would keep buying those securities by linking the time frame for the stimulus program to economic conditions.
“We’re going to have to give some clarification, I think, in the not too distant future,” Mr. Kaplan said. “I could see where at some point we might give guidance on expressing the conditions under which we begin to taper, for example.”
Joe Biden has been here before. Twelve years ago, as Barack Obama’s newly elected vice president, Mr. Biden inherited an economy laid low by a once-in-a-century crisis.
The good news is that, unlike then, the recovery from the pandemic-driven economic contraction is now under way and with vaccines about to be approved, an end to the latest crisis is in sight. The bad news for Mr. Biden is that while he and his team want to accelerate the recovery, they may not be able to do much about it. Monetary policy is largely exhausted and fiscal policy is at the mercy of Congress.
In 2009, Democrats controlled both the House and Senate. If Republicans win at least one of two runoffs in Georgia next month, they will retain control of the Senate, where they will likely take a harder line on deficits than they did under President Trump.
The emphasis Mr. Biden has placed on the recovery can be seen from who he has asked to steer it. If confirmed, Janet Yellen would be the first practicing economist to serve as Treasury secretary in two decades. She has spent her career in academia and government, including as head of the Federal Reserve, studying and managing the balance between unemployment and inflation.
Today, it is clear which is the priority. Like the financial crisis 12 years ago, “The pandemic and economic fallout…have caused so much damage for so many,” she said Tuesday. “It’s essential that we move with urgency. Inaction will produce a self-reinforcing downturn causing yet more devastation.”