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The Federal Reserve should quickly start to raise its benchmark interest rates next year given “alarmingly high” inflation readings, said Federal Reserve Gov. Christopher Waller on Friday.
The Fed is in the process of winding down its bond purchase program that has supported economic growth during the pandemic. Earlier this week, the Fed decided to end the purchases in March, a few months earlier than had been planned.
“I believe an increase in the target range for the federal funds rate will be warranted shortly after our asset purchases end,” Waller said, in a speech to the Forecasters Club of New York.
Fed watchers have begun debating whether the Fed would raise its benchmark interest rates in March or wait until May. Waller’s comments won’t end that debate, but he appears to be tilting toward an earlier start.
Economists think the Fed has to keep moving away from the easy monetary policy stance that was put in place to help the economy weather the storm of the pandemic.
In his speech, Waller said the outlook was bright and the labor market was close to the Fed’s goal of “maximum employment.”
He estimated that employment is only 1.5 million jobs below its pre-pandemic level. And the U.S. economy seems on track to grow at a 6%-7% annual rate this quarter and nearly as much in the first three months of 2022, he said.
Waller said the omicron variant of the coronavirus now resulting in a rise in COVID cases in the U.S. was a “big uncertainty.” The public health threat could slow the economy or, on the flip side, accelerate inflation pressures, he said.
The Fed has to be prepared to adapt fast,” he said.
Stocks
DJIA,
SPX,
were sharply lower on Friday on concerns about tighter monetary from the Fed and other central banks.
