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FOMC member and President of the Federal Reserve of Atlanta Raphael Bostic, speaking to Fox, said that the US Federal Reserve might taper its asset purchase programme sooner than expected.

He has already made similar comments earlier in the week and markets have not reacted. Market appear not to be taking this “hawkish threat” seriously at the moment. If they were, real US bond yields would likely to be moving higher (10-year TIPS is still below -1.0% and close to record lows) and nominal US yields, which have been rising with inflation expectations, would likely be moving higher still. 

Context

The hot topic with regards to Fed policy at the moment is when and how the bank might “ween” financial markets off of its ongoing asset purchase programme. Various FOMC members have given their take on the topic and Wednesday’s release of the minutes of the FOMC’s 15-16 December meeting also touched on the issue. 

FOMC Minutes…

all participants supported providing more detailed forward guidance on asset purchases and supported the adoption of the new qualitative outcome based guidance. As a reminder, the FOMC said in its December statement that the pace of asset purchases would continue until substantial further progress has been made toward reaching the Committee’s maximum employment and price stability goals.

FOMC participants supported the idea of following a sequence similar to that of 2013-2014 when the time came to scale back the asset purchase programme. Meanwhile, some participants noted that the Committee could increase the pace or weighting of purchases towards those with a longer maturity if such adjustments were deemed appropriate (although there was little support to take such actions in the immediate future).

But while markets have largely been ignoring the theme of the Fed, the debate regarding when and how the FOMC might scale back its asset purchase programme has started to hot up. A number of Fed members have spoken on the topic, including over the last few hours;

FOMC members speaking this week 

On Thursday, FOMC member Charles Evans (President of the Chicago Fed) said any changes to QE would depend on how the recovery goes and if unemployment is coming down to 5% and the Fed is “making progress” (similar language to the most recent statement) on inflation, then the Fed may no longer need to do more QE. Evans added that he would advocate for the Fed using QE to “send a message” on the Fed’s commitment to its 2% inflation target if needed (i.e. if inflation remains persistently low, he would advocate more QE).

On Thursday, FOMC Member James Bullard (President of the St Louis Fed) said, seemingly reference when he would start to reassess the need for continued asset purchases, that he would assess where the economy stands once the unemployment rate had fallen into the 4% range.

On Tuesday, FOMC Member Loretta Mester (President of the Cleveland Fed) said she would like to see the Fed taper asset purchases by next year, though this would depend on the economy.

On Monday, FOMC Member Raphael Bostic (President of the Atlanta Fed) sounded the most hawkish on the outlook for the bank’s QE programme, saying that recalibration of the Fed’s QE programme could come in “short-order” if coronavirus vaccines and the economic recovery “takes hold”.