Federal Reserve Gov. Michelle Bowman on Thursday said the labor market was “very close” to the hurdle needed for the central bank to start slowing its bond purchases, a process that should be able to start this year.
“If the data comes in as I expect that it will, that it will likely be appropriate for us to begin the process of scaling back our asset purchases this year,” Bowman said, during a virtual discussion with the American Bankers Association.
The Fed has been buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month since last summer in an effort to keep long-term interest rates low and spur demand.
Fed officials are divided over when to start pulling back purchases. Some Fed would like an announcement of a plan as soon as the central bank’s next meeting on Sept. 21-22. Others are counseling patience.
Krishna Guha, a former top Fed staffer and now an analyst at Evercore ISI, said the Fed leadership is oriented towards tapering this year.
“The dud August job report…has killed off any prospect of a tapering decision in September as opposed to November or possibly December,” Guha said, in a note to clients.
Bowman said she was optimistic about the economic outlook and didn’t put too much weight on the disappointing August jobs report that was released last Friday.
“Even though some of the recent data may have been less strong than we expected, we’re still looking at very robust economic growth,” Bowman said.
The Fed governor said that she thought that supply and demand imbalances had played a role in the spike of inflation this year, but warned inflation may remain “higher for longer” than currently anticipated.
Bowman joined the Fed in 2018 and was reappointed last year to a 14-year term on the Fed’s board of governors. A former state banking commissioner from Kansas, Bowman holds the board seat at the Fed that is dedicated to representing the interest of community banks.