Fed officials say tapering is near, advancing discussion on rate hike

Two Federal Reserve officials said on Monday that the U.S. economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

Atlanta Federal Reserve Bank President Raphael Bostic said he is eyeing the fourth quarter for the start of a bond-purchase taper but is open to an even earlier start if the job market keeps up its recent torrid pace of improvement. Moreover, he and Richmond Fed President Tom Barkin both said they believe inflation has already achieved the Fed’s 2% threshold, according to their separate assessments. That is one of two requirements to be met before rate hikes can be considered.

Their remarks are a sign that as Fed officials hold discussions about how and when to taper their asset purchases, they are also getting more detailed in their debate about what it will take to satisfy the Fed’s inflation target under the new framework.

Bostic, who has already penciled in late 2022 for the start of rate hikes, pointed to the five-year annual average for the core personal consumption expenditures index, or core PCE inflation, which by his calculation reached 2% in May.

Read more..