Fed's Daly: Appropriate to consider tapering later this year

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Federal Reserve Board building is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

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July 2 (Reuters) - Federal Reserve Bank of San Francisco President Mary Daly said the U.S. central bank may be able to start reducing "a little bit" of its extraordinary support for the U.S. economy by the end of this year.

“The economy is really shaping up nicely," Daly told the Associated Press in an interview, a recording of which was provided to Reuters by the San Francisco Fed.

"It is appropriate to consider tapering asset purchases later this year or early next year," she said. “That timeframe has been evolving of course, but I really see the economy as being able to start functioning more and more on its own, which means we can withdraw a little bit of our accommodation, of course not the majority of it."

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Fed policymakers have been surprised at the strength of the U.S. recovery this year, fueled by $2.8 trillion in federal pandemic aid and a faster-than-expected rollout of vaccines against COVID-19.

That has touched off an internal debate over when and how to start reducing their purchases of Treasuries and mortgage-backed securities, which they had promised to continue doing at a pace of $120 billion a month until the economy makes "substantial further progress" towards the Fed's employment and inflation goals.

Some Fed policymakers feel the taper ought to start soon to make room for the possibility that the Fed will need to start raising interest rates by next year. Daly's comments suggest she is not in any such rush.

"We are still not near our full employment goals. We are still likely to be missing, going forward, on our inflation target, our price stability goals, despite the temporary runups in measured inflation," she said. "Those are things I'm really rigorously sticking to."

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Reporting by Ann Saphir; Editing by Leslie Adler and Alistair Bell

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