Kansas City Federal Reserve President Esther George said Thursday tapering should begin "sooner rather than later," ahead of the Jackson Hole meeting.
"Certainly the inflation numbers are coming in strong, and would suggest that there's an opportunity to begin to dial back on asset purchases," George told FOX Business’ Edward Lawrence during an exclusive interview.
In its latest policy meeting, the Federal Reserve revealed that it could start tapering asset purchases as early as the end of this year.
"Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee's "substantial further progress" criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal," the summary of the July Federal Open Market Committee meeting minutes stated.
George said the "communication about that coming out of the September meeting will reflect the deliberations and the views of the Committee on how that progress is being achieved."
The Fed cut interest rates to zero at the height of the coronavirus pandemic and began purchasing $80 billion a month in Treasury securities and $40 billion in mortgage securities in an effort to provide additional stimulus to the economy. In December, Fed officials said they would want to see "substantial further progress" toward meeting their goals of inflation around 2% and labor market conditions consistent with full employment.
While various officials said a reduction could come in the "coming months," others indicated that it would more likely become appropriate early next year, noting that the transitory nature of the year's rise in inflation, as well as the recent declines in "longer-term yields and in market-based measures of inflation compensation," cast doubt on the degree of progress that has actually been made toward the price-stability goal since December.
Some participants warned that the committee should be prepared to start tapering "relatively soon, in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated." In addition, committee members emphasized the importance of clearly reaffirming "the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate."
Although George is unsure of the timeline for getting asset purchases tapered off, she pointed out that as she watches the "economy unfolding," it's better to do it "sooner rather than later."
"The baseline outlook that we are going to continue to see job gains, continue to see strong growth, it suggests that we can begin to make some of those adjustments this year," she said, adding that, "I think that's going to be an important first step to judging how the economy unfolds."
George went on to say that she is in favor of "continuing to back out of this the way we went into it."
"There was not an intent going in to buy mortgage-backed securities related to the housing market. I understand now the housing market is looking particularly frothy but backing away from those asset purchases is really designed to achieve a broader objective, and that is to remove, in a systematic way, accommodation as the economy gets stronger," George explained.
George also believes the U.S. economy will achieve "high growth" at a rate of 6 to 7% this year.
FOX Business’ Lucas Manfredi contributed to this report.