Federal Reserve Governor Christopher Waller said the U.S. central bank may have to quicken the wind-down of its asset purchases and pivot off near-zero interest rates faster if job growth remains robust with inflation far above the central bank’s 2% target.
“The rapid improvement in the labor market and the deteriorating inflation data have pushed me towards favoring a faster pace of tapering and a more rapid removal of accommodation in 2022,” Waller said Friday in New York at an event sponsored by the Center for Financial Stability. “I believe that policy may need to pivot to a faster taper based on incoming data that I will be monitoring.”
No governor has dissented from a monetary-policy decision since 2005, and board members often stake out positions in line with the broader consensus. Shortly after Waller’s remarks, Fed Vice Chair Richard Clarida said at a separate event that it may be appropriate for policy makers to discuss next month whether to speed up the tapering of bond buying.
Waller’s comments emphasized that both the bond-purchase runoff and the timing of rate increases are flexible policy tools that the Federal Open Market Committee could adjust if necessary. U.S. central bankers are worried about accelerating inflation as consumer prices rose 6.2% last month, the fastest annual pace since 1990, while households are pushing up their expectations of future inflation.
Fed policy makers announced Nov. 3 they had agreed to begin reducing monthly bond purchases -- which were designed to boost the economy by suppressing borrowing costs -- by $15 billion a month. They also pledged to keep interest rates around zero until the economy achieves full employment.
Waller said the committee’s inflation goal has been met and he sees the labor market recovery proceeding at a strong rate.
‘Sitting Around’
Even if the inflation forecast suggests price pressures could ease in a year, “sitting around waiting for this to disappear is not necessarily the optimal policy response,” he said in a question-and-answer period following his speech.
Waller said he didn’t see why a faster taper should roil bond markets -- recalling the “taper tantrum” in 2013 -- because it is “not true” that an immediate interest-rate increase would follow the end of asset purchases.
The unemployment rate stood at 4.6% in October and Fed Chair Jerome Powell said at his press conference this month that the labor market recovery is incomplete. Black unemployment was 7.9% last month and measures of labor-force participation for workers age 25 to 54 are about a percentage point below pre-pandemic levels.
Waller said the labor market “is rapidly approaching maximum employment” and he added that he expects the supply of labor to improve as demand continues strong. He said recent labor negotiations may be showing some cost-of-living adjustments, in response to a question.