UPDATE 1-Bostic: Strong 2021 growth, but "not my expectation" Fed will change policy

  • 2/4/2021
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(Includes bond purchase discussion) WASHINGTON, Feb 4 (Reuters) - Strong 2021 growth of perhaps 6% or more likely won’t prompt the Federal Reserve to trim its bond purchases this year, Atlanta Fed President Raphael Bostic said Thursday, tempering earlier comments that robust growth might open the door to a bond “taper.” “That is not my expectation,” Bostic said in an interview with Yahoo Finance. While he expects the economy to be buoyed by the rollout of coronavirus vaccinations, the Fed is “still going to need to offer support and extend support very robustly, and I don’t want there to be any uncertainty about that - that we are going to be eager to step back.” Bostic last month suggested he’d be open to a sooner-than-expected shift in policy if the economy outperformed. Other Fed officials, including Fed chair Jerome Powell, said that was unlikely. Bostic on Thursday noted that under the Fed’s new strategy the intent is to let the economy “run hot” in hopes of driving employment higher, so the outcome would “have to be very strong” in terms of the job market to change the course of Fed policy. Along with keeping its target short-term interest rate near zero, the central bank is buying $120 billion a month in government and government-backed securities to ensure long-term borrowing costs remain low. The Fed has pledged to keep that pace of asset purchases in place until the economy is more fully recovered. At this point, Bostic noted, the level of overall output, measured by gross domestic product, is rebounding faster than jobs - a pattern typical in the rebound from a recession since businesses tend to use downturns to retool and become more efficient. The jobs report to issued on Friday and covering the month of January may show a continued lull in hiring. Though roughly 10% of the country has received at least one of the two-dose coronavirus vaccination, Bostic said it is “very, very early” in the process, and too soon to see a positive impact on economic data.

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