Feds Williams: Fed will grapple with faster bond buying taper

More from New York Fed's Williams:

  • He doesn't see a compelling argument for taking a big step at the beginning of interest rate lift off
  • Fed can steadily move up interest rates and reassess by speeding up or slowing down pace of rate increases if needed
  • He sees interest rates moving to normal levels more quickly than in 2015 and 2016
  • Basic path of moving to a more normal Fed funds rate of 2% to 2.5% by the end of next year makes sense to him
  • He doesn't see the need for asset sales in the near term because Fed can shrink balance sheet quickly through run off
  • Sales of MBS are something the Fed can consider later on to achieve goal of holding portfolio that invest primarily in treasury securities
  • He expects that the Fed could carry out MBS sales itself in the house if needed, but a decision has not been made

Some points of interest are his

  • Assessment of the terminal rate. If 2% -2.5%, that implies seven to nine total tightenings by end of 2023. There are some analysts who see seven tightenings in 2022.
  • He is not looking to do quantitative tightening
  • Thinks the Fed can sell MBS portfolio privately to investors. As long as the housing market remains strong, and so does the economy, the large investors may have an appetite for higher yields from mortgage-backed securities