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The Fed

Sept. 24, 2021, 10:07 a.m. EDT

Fed’s Mester backs taper of bond purchases starting in November

by Greg Robb

Cleveland Federal Reserve President Loretta Mester said Friday she wants the Fed to start to slow down, or taper, its bond purchases in November and end them sometime before next June.

“Last December, the FOMC issued forward guidance that we would not begin tapering our purchases until substantial further progress had been made toward our goals of maximum employment and price stability.  In my view, the economy has met those conditions, and I support starting to dial back our purchases in November and concluding them over the first half of next year,” Mester said, during a speech to the Ohio Bankers League on Friday.

Mester said “a strong economic recovery is underway,” albeit uneven and with risks. She forecast economic growth will remain strong next year, with GDP growth in a range of 3.75%-4%.

The unemployment rate should decline to 4% by the end of 2022 from 5.2% in August.

The Fed has been purchasing $80 billion of Treasurys and $40 billion per month of mortgage-backed securities each month since last summer to hold down long-term interest rates and support the economy.

On Wednesday, Fed Chairman Jerome Powell signaled that the Fed was close to announcing the tapering at its next meeting on Nov. 3.

Mester, who will be a voting member of the Fed’s interest-rate committee next year, said that the start of asset-purchase tapering “should not be taken as a signal that the FOMC plans to raise the fed funds rate any time soon.”

She said she expects the standards the Fed has set for the first rate hike to be met by the end of next year.

U.S. stocks (DOW:DJIA) (S&P:SPX) opened lower Friday as bond yields (XTUP:BX:TMUBMUSD10Y) continued to move higher in the wake of Powell’s press conference on Wednesday.

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