(Bloomberg) — Federal Reserve Governor Christopher Waller said that given his expectations for inflation and labor market conditions, increasing the federal funds rate will be warranted “shortly after” the central bank concludes its asset purchases early next year.
With U.S. labor market “closing in” on maximum employment and inflation exceeding the Fed’s 2% target for some time, “I strongly supported” the Federal Open Market Committee’s decision this week to accelerate the winding down of bond buying, he said Friday in remarks prepared for an event hosted by the Forecasters Club of New York.
“By choosing to speed up our reductions in asset purchases, the FOMC is providing flexibility for other adjustments to monetary policy, if needed, as early as spring to accommodate changes in the economic outlook,” Waller said, referring to the Federal Open Market Committee.
Fed Chair Jerome Powell and his colleagues on the FOMC decided Wednesday to double the pace at which they are winding down their bond-buying program, putting them on track to wrap it up by mid-March, and signaled they expected three increases in their benchmark federal funds rate would probably be appropriate in 2022.
“The appropriate timing for the first increase in the policy rate, of course, will depend on the evolution of economic activity, something that I will be closely monitoring,” Waller said. “But given my expectations for inflation and labor market conditions, I believe an increase in the target range for the federal funds rate will be warranted shortly after our asset purchases end.”
The references to spring and to raising rates “shortly after” tapering ends suggest Waller may not necessarily favor hiking at the Fed’s March 15-16 meeting, as some analysts expect the Fed to do.
Waller said he expects the U.S. economy and employment to continue growing very strongly through at least the first half of next year. Inflation “is alarmingly high, persistent, and has broadened to affect more categories of goods and services,” he said.
Calling the omicron variant of Covid-19 a “big uncertainty” for his outlook, Waller said that it could aggravate labor and goods supply shortages and add inflation pressures, potentially derailing the moderation of price gains he expected to see next year.
Omicron “could slow the recovery or exacerbate inflation pressures, so we will have to be ready in the coming weeks to adjust as needed,” he said.
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