NY Fed's Williams says now not the time to take action on tapering

FILE PHOTO: John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri

(Reuters) -While it makes sense for Federal Reserve officials to begin discussing their options for adjusting monetary policy, the U.S. economy is still far from the point at which the central bank might begin to withdraw its support, New York Fed Bank President John Williams said on Thursday.

“We’re still quite a ways off from reaching the ‘substantial progress’ that we’re really looking for in terms of adjustments to our purchases,” Williams said during an interview with Yahoo Finance, referring to the Fed’s monthly purchase of $120 billion in bonds. “I just don’t think the time is now to take any action.”

Fed officials have said they are going to continue purchasing Treasury bonds and mortgage-backed securities at the current pace until the economy shows “substantial further progress” toward the central bank’s goals for inflation and maximum employment.

Policymakers seem poised to begin discussing the best way to scale back those purchases after several Fed officials said they think it will soon be time to start the conversation. Officials are slated to meet again on June 15 and 16.

Asked about the rising popularity of the New York Fed’s reverse repo facility, which gives money market funds and other eligible firms a place to park their cash overnight, Williams said the program is working as intended when reserves are high.

Use of the program, which offers a zero percent return, surged to a record high last week and take-up remains elevated as firms struggle to find safe options for investing their excess cash.

The cash buildup is pushing down rates and increasing expectations that the Fed may need to act by raising the rate it pays on reverse repo operations or lifting the interest rate it pays banks on excess reserves, or IOER.

Williams said the Fed stands ready to make technical adjustments as needed to keep the federal funds rate, the central bank’s critical policy rate, within the target range.

“Not only is the program working exactly as designed but we have the ability to tweak it,” he said.

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