The Federal Reserve Should Still Start Tapering
Moderate consumer-price data from August is good news. But the central bank’s bond-buying program needs to be pared back regardless.
Take in the bigger picture.
Photographer: Chip Somodevilla/Getty Images
At the Federal Reserve’s next policy meeting, on Sept. 21–22, officials will resume their debate about when and how to taper their Covid-related bond-buying program. Signs of a slowing economy thanks to the resurgent pandemic have complicated matters — especially when it comes to explaining the policy to investors — but the basic calculation hasn’t changed. Neither the recent setbacks nor Tuesday’s more-moderate-than-expected inflation figures should deflect the Fed from beginning to taper promptly and from planning to end the program by the spring.
The Fed has said it wants to see “substantial” progress on jobs and inflation before dialing back its $120 billion a month of bond purchases. Its medium-term goal for inflation is to slightly exceed (by an unspecified amount and for an unspecified period) the central bank’s long-term 2% target. The benchmark for jobs is “maximum employment.” At its last policy meeting, Fed Chairman Jerome Powell said that inflation, now running at 3.6% according to the central bank’s preferred measure, had ticked that box. Jobs, however, still had a way to go. Then came the employment figures for August — an increase of only 235,000, against an expected 733,000, making an early announcement on tapering harder to justify.