The US Federal Reserve could raise interest rates as early as March if confronted with “alarmingly high, persistent inflation”, a central bank board member said on Friday.
Christopher Waller, one of the six Fed governors, endorsed its decision this week to accelerate how quickly it scales back its asset purchase programme so that the stimulus ends several months earlier than initially outlined.
The revised schedule would bring the stimulus to an end in March 2022, soon after which the Fed should raise interest rates, he said at an event hosted by the Forecasters Club of New York.
‘Rise in Target Range’
“I believe an increase in the target range for the federal funds rate will be warranted shortly after our asset purchases end,” he said. “March is a live meeting for the first rate hike.”
He later added that the Fed could begin shrinking the size of its balance sheet by the summer.
“Turning to inflation, it is alarmingly high, persistent, and has broadened to affect more categories of goods and services, compared with earlier this year,” Waller said in his speech.
More Flexibility
Earlier John Williams, president of the New York Fed, said speeding up the “taper”, or the reduction of the stimulus programme, was “exactly the right thing to do”, by giving the central bank more flexibility to raise rates earlier.
“It’s really about getting our monetary policy stance in a good position and also obviously creating the optionality, at some point next year likely, to actually start raising the federal funds target range,” Williams told CNBC.
According to projections released by the Fed this week, officials expect three interest rate increases in 2022, followed by three more in 2023. A two-notch adjustment is also pencilled in for 2024, bringing the main policy rate closer to 2%.
George Russell
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