The volatility in stock markets isn’t likely to derail the Federal Reserve’s plans to end its two-year-old program of bond purchases next week, according to two influential officials.
“Just because we’re seeing volatility in the last two weeks isn’t enough to have me fundamentally change my forecasts,” said Federal Reserve Bank of Boston President Eric Rosengren in an interview published by Bloomberg on Monday.
Rosengren, usually one of the Fed officials most in favor of monetary easing policies, said the Fed should halt the large-scale bond purchases at its two-day meeting schedule to begin Oct. 28. The Fed began purchasing $85 billion of Treasury and mortgage-backed securities in late 2012 and tapered those purchases down to just $15 billion at its September meeting.
San Francisco Fed President John Williams made similar comments in an interview with the Wall Street Journal published Sunday evening.
“I don’t think there’s really been any important economic news or economic developments that would cause me, based on the last few weeks, to shift my view on the outlook for the U.S. economy or in fact for the global economy by a significant amount,” Williams said. Holding Fed Chairwoman Janet Yellen’s old post in San Francisco, Williams is generally thought to be relatively close to Yellen’s own thinking about monetary policy.
Williams added that the scenario in which he would advocate another round of quantitative easing would be if the economic outlook were to deteriorate to the point that “we would kind of be stuck in the mud” without further easing, but otherwise he would prefer to rely on communications about interest rates rather than quantitative easing to guide monetary policy.
While neither Rosengren nor Williams is on the committee that votes on Fed monetary policy this year, none of the voting members has spoken out to suggest that events have overtaken the Fed’s previous indications that the bond purchases would end this month. That includes Yellen, who spoke publicly Friday but limited her comments to U.S. inequality.
Measures of volatility have shot up to the highest levels in two years in recent weeks, as bond yields have dropped. Yields on U.S. 10-year notes fell to the lowest levels since last summer, near 2 percent, and 30-year fixed-rate mortgage rates dipped below 4 percent.
The Fed has been aiming to transition away from quantitative easing and setting the stage for raising short-term interest rates above zero for the first time since 2008. The Fed has said that increases will come “a considerable time” after the bond purchases end, dependent on incoming economic data.
The recent market volatility has slightly pushed back investors’ expectations for the first increase in rates. Currently, bond markets price them for around September 2015.
