Fed can afford to be patient in deciding when to taper: Rosengren
(Reuters) – The Federal Reserve can afford to be patient in deciding when to begin scaling back its bond purchases because there will be little difference to the size of the Fed’s balance sheet whether the U.S. central bank starts to taper in December or waits until April, a top Fed official said on Monday.
In a familiar speech defending accommodative monetary policies, Eric Rosengren, president of the Boston Fed, said it may be appropriate to reduce the quantitative easing program when there is “compelling evidence of a sustainable recovery making satisfactory progress toward full employment.”
The Fed’s monthly purchases of $85 billion in Treasuries and mortgage-backed securities are meant to hold down long-term interest rates and stimulate U.S. investment, hiring and economic growth in the wake of the Great Recession.
Given a gradual drop in unemployment and worries over a swelling Fed balance sheet – now at a record $3.8 trillion – investors were shocked when policymakers choose not to reduce the bond purchases in September. The policymakers again stood pat last month, leaving investors guessing when they will finally move.
Rosengren, a policy dove who strongly backed the decisions, highlighted data comparing two “hypothetical” approaches to quantitative easing: one in which the buying is unchanged until April 2014; and another fairly aggressive approach in which the buying is reduced to $75 billion in December, $50 billion in January, $25 billion in March, and completed altogether by April.
“Start dates differing by a quarter or two would generate only relatively small changes in the overall size of the Fed’s balance sheet,” Rosengren said in remarks prepared for delivery at the University of Massachusetts Boston.