(Bloomberg) — Federal Reserve Governor Christopher Waller said the U.S. central bank could start raising interest rates as early as its March 15-16 meeting, after deciding to end asset purchases sooner than planned.
“The whole point of accelerating the tapering was to end it much faster in March so the March meeting could be a live meeting. That was the intent,” Waller said Friday in response to a question after a speech to the Forecasters Club of New York. “It’s going to depend on what the data comes in, but March is a live meeting for the first rate hike.”
Fed Chair Jerome Powell and his colleagues on the Federal Open Market Committee 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.
“My outlook is that it’s a very likely outcome that it could happen in March,” Waller said. “It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from from being a key date to think of for liftoff.”
In addition, Waller also argued in favor of the Fed starting to shrink its massive balance sheet within one or two meetings of rate liftoff by allowing maturing securities to run off.
That would be much faster than the last time the Fed shrunk its balance sheet after ending its asset purchase campaign, when it waited three years.
“If we start doing some balance sheet runoff by summer, that’ll take some pressure off, you don’t have to raise rates quite as much,” he said. “My view is we should start doing that by summer.”
Powell told reporters on Wednesday that a discussion had begun on the balance sheet but no decisions had been taken on when runoff would start.
In his speech, 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.
More stories like this are available on bloomberg.com
©2021 Bloomberg L.P.
