Bullard: Fed Should Scale Back On Central Bank Bond Buying

It’s time for the Federal Reserve to ease up on bond-buying by the central bank, in part because keeping it up could cause problems in the housing market, which shows no signs of slowing down its brisk pace, Federal Reserve Bank of St. Louis President James Bullard told The Wall Street Journal.

“I think the time is right to pull back emergency measures,” Bullard told the WSJ, pointing to 7 percent growth in the U.S. economy and continued drops in the number of positive COVID-19 cases across the country, with almost half of Americans fully vaccinated. He said the pullback can wait until the Federal Open Market Committee is ready to act. “We do want to do it gently and carefully, but I think we’re in a very good position to start a taper,” he said.

The Federal Reserve Bank has been buying bonds at a pace of $120 billion a month since the COVID-19 pandemic triggered fears of an economic crash in March 2020. That brisk purchase pace has led to investors taking new risks all over the world, including a six-month jolt for bitcoin that ended in April, when the most popular cryptocurrency topped out at $60,000 per digital coin.

New York Fed President John Williams doesn’t see the direct link between the central bank buying mortgage bonds and the housing market like Bullard does. He urged Bullard and others who tie the two together to instead consider how both purchase types can support overall economic growth. The job market is still in a bit too precarious of a position for the Fed to stop buying assets, said Williams.

Bullard told the WSJ that he expects inflation will rise to 3 percent this year and 2.5 percent in 2022. That would be a positive outcome, as the Fed aims for levels above 2 percent to make up for the drop during the pandemic.