Fed’s Mary Daly says tapering of bond purchases may start this year

San Francisco Federal Reserve Bank President Mary Daly poses at the bank’s headquarters in San Francisco, California, United States on July 16, 2019.

Ann sapphire | Reuters

San Francisco Federal Reserve President Mary Daly told CNBC on Tuesday that a strong economic recovery will allow the central bank to potentially slow its bond purchases towards the end of 2021.

Markets have been looking for clearer guidance from the Fed on when it will begin slashing or trimming the minimum amount of $ 120 billion it buys in government bonds and mortgage-backed securities.

Although Daly didn’t provide an exact schedule, she said the time for the tapering is getting closer.

“It is appropriate to talk about reducing asset purchases to cut some of the safeguards we have put in place for the economy,” said CNBC’s Steve Liesman. “We’ll still be in a very accommodating position with a low funding rate, but we don’t need all of the tools that we can see the economy get its own footing.”

This is “absolutely the right time to get started and have these conversations,” she added. “In my opinion we will likely be in a good position to go down by the end of this year or early next year.”

The Fed has resisted calls from some big names in the market to pull back on buying, also known as quantitative easing.

Among the concerns of investors like Paul Tudor Jones and corporate officials like Bank of America President Brian Moynihan was that the Fed is allowing the economy to overheat and risk inflation.

Daly spoke just hours after the Labor Department said headline inflation rose 5.4% year-over-year in June, a number that is above market expectations and the hottest since the worst financial crisis of 2008.

However, like many other Fed officials, she remains convinced that the current inflationary pressures will not persist once the economy returns to normal.

“Right now it’s really stable in the boat, don’t read too much signal from a month’s data and let’s get through this volatile period so we can really see where the economy is,” she said.

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