3 Minutes to Read (Source: Reuters) Federal Reserve Governor Christopher Waller, who described himself as “quite hopeful,” said on Tuesday that the US central bank may need to begin winding down its huge asset purchase program as soon as this year in order to raise interest rates by late next year. FILE PHOTO: On July 31, 2013, an eagle atop the US Federal Reserve building’s exterior in Washington, D.C. Jonathan Ernst/File Photo/REUTERS “Before we would contemplate seriously a rate hike in 2022, the unemployment rate would have to decrease rather dramatically, or inflation would have to continue at a very high clip, but I’m not ruling it out,” Waller told Bloomberg TV in his first public comments since the Fed met earlier this month. Waller would not specify whether he is one of the seven Fed policymakers who believe a 2022 rate hike is acceptable, or one of the 11 who believe a 2023 or later rate hike is more likely. “We are now in a different phase of economic policy,” Waller said, “and so it’s reasonable to start thinking about drawing back on some of the stimulus,” beginning with how and when the Fed’s monthly purchases of $40 billion in mortgage-backed securities and $80 billion in Treasuries are tapered. Waller stated that phasing out MBS purchases first would be “all in favor.” “The housing markets are on fire right now; they don’t need any more unneeded help,” he remarked. “It’s also simple to sell to the general people.” Waller, who joined the Fed Board last year after working as research director for St. Louis Fed President James Bullard, is the central bank’s newest policymaker. Bullard stated last week that higher-than-expected inflation has prompted him to predict the first Fed rate hike next year. Waller stated on Tuesday that his rate-path forecast from March had not changed. He said the economy has strengthened far faster than he and other policymakers anticipated in December, when they vowed to keep buying assets at the present rate until there is “substantial further progress” toward the Fed’s full employment and 2% inflation goals. “I think everyone expects tapering to begin sooner than they originally anticipated,” Waller added. “We’ll see if that happens this year, but it certainly could.” Inflation is at 2%, as the Fed had hoped, and inflation expectations have remained stable, he said. However, the labor market is still “a long way” from pre-pandemic levels. “I’d prefer to see tapering completed before we consider raising rates,” he added. “If you think you’ll have to raise rates in late ’22 or early ’23, you’ll want to finish tapering by the end of next year if at all possible.” Ann Saphir contributed reporting, while Rosalba O’Brien and Stephen Coates edited the piece. Continue reading
