US Federal Reserve governor Daniel Tarullo has said that US monetary policy will continue to be accommodative, and that the unemployment and inflation thresholds set for the unwinding of quantitative easing will not be triggers to start action.
Tarullo said that reaching an unemployment level of 6.5 per cent without inflation moving more than half a percentage point above two per cent two years out would prompt the Fed to sit down and talk about what to do next – not to take immediate action.
He said that the details would have to be examined, for example, if the labour force participation rate hasn’t bounced back, there would be reasons to debate the merits of tapering.
Even when tapering does come, "nobody is talking about unwinding or selling the securities" that have been bought.
On fiscal policy, Tarullo questioned whether the economy could handle tightening, which will be at its worst in the second and third quarters.
Tarullo defended the government's policies, saying he has long been sceptical that growth without monetary and fiscal stimulus was sustainable because of household deleveraging. Policies have helped to buy time for households and financial firms to rebuild their balance sheets - and growth could now be self-sustaining. However, he also stressed the importance of transparency, particularly when the Fed is engaging in “unconventional” politices.