Fed's Mester says outlook calls for asset purchases to stay steady in 2021

FILE PHOTO: Cleveland Federal Reserve Bank President Loretta Mester speaks in London, Britain, July 2, 2019. REUTERS/Marc Jones

(Reuters) -If the U.S. economy behaves as expected – slowing down in the first half of 2021 and picking up in the second half as more Americans are vaccinated against the coronavirus – it is unlikely the Federal Reserve will need to make changes to its asset purchases this year, Cleveland Fed President Loretta Mester said on Tuesday.

“I’m happy with the way policy is calibrated right now,” Mester told reporters. “If things work out the way I hoped that they worked out, I would like us to be able to taper asset purchases next year, et cetera. But again, it’s really going to depend on the economy.”

At their December policy-setting meeting, Fed officials agreed to continue purchasing about $120 billion a month in government bonds until there is “substantial further progress” in the Fed’s goals for the labor market and inflation.

Mester said she thinks it’s unlikely that the economy will meet that threshold this year, as the virus continues to spread and weigh down sectors that rely on close human interaction.

If the economy rebounds much more quickly than anticipated, that would move up the timeline for adjusting policy, Mester said.

A slower-than-expected rollout of coronavirus vaccinations could lead to a longer economic recovery, Mester said.

The Fed also needs to remain accommodative to boost inflation, which is unlikely to move quickly past the central bank’s 2% average target, Mester said.

“The real issue now is low inflation,” Mester said, “rather than inflation that gets too high. But again it’s going to depend on what the economy is doing at the time.”

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