Atlanta Fed President Raphael Bostic told the Reuters Next conference on Thursday it would be appropriate to end the central bank's bond-buying program by the end of March to allow the Fed to raise rates to deal with inflation.
The Fed, which began tapering its bond-buying last month at a pace that would end the program by June, is set to consider compressing that timeline when policymakers meet on Dec. 14 and 15.
With robust growth, an improving job market and inflation more than twice the Fed's 2% target, "I think having this finished some time before the end of the first quarter would be in our interest," Bostic said.
And if inflation continues as high as 4% through next year, as some forecasters project, "there's going to be a good case to be made that we should be pulling forward more interest rate increases and perhaps even do more than the one I've penciled in."
Only half of Fed policymakers in September thought the Fed should start raising rates next year, with the rest expecting the first rate hike in 2023. Since then, several appear to have moved their rate hike expectations earlier.
After this week's hawkish Fed commentary, rate futures traders now see the first Fed rate hike in May.
Though the new Omicron variant's severity and transmissibility will determine how afraid people are, Bostic said each successive wave of COVID-19 has led to milder economic slowdowns. If that holds, the economy will continue to grow through it, he said.
Bostic is hardly the Fed's lone hawkish voice. Earlier this week, Fed Chair Jerome Powell said he wants a faster taper timeline on the table at this month's meeting.
Bostic said he doesn't see "tension" between the Fed's two goals of price stability and full employment at the moment. Once the Fed does start raising rates, he said, it will likely do so at a "slow and steady" pace. Though if inflation does not recede as expected over the next year or two, it may need to "take more strident steps" to rein it in, he said.
But other Fed policymakers appear increasingly worried they may need to put the brakes on growth before the labor market has fully healed and millions of unemployed Americans find jobs.
"If we didn't have higher inflation readings, you might let the economy go a little bit more to see if we can get through COVID and have those individuals come back," said San Francisco Fed President Mary Daly, who as recently as last month was calling for "patience" in the face of high inflation.
"Right now, we're dealing with inflation that's above our target and inconsistent in its current readings with our longer run views on price stability," Daly said during a virtual event held by the Peterson Institute for International Economics. "We have to deal with that."
Speaking alongside Daly at the Peterson event, Richmond Fed President Thomas Barkin said it is important for the Fed to keep long-run inflation expectations anchored. "I do take seriously actual inflation and its impact, and that's why I'm supportive of normalizing policy as we're doing," he said.
Fed Governor Randal Quarles, in his final public appearance before leaving his post this month, took an even more hawkish stance. He said at an American Enterprise Institute event he believes "sustained higher demand" is stoking inflation and the Fed should "constrain that demand" to allow supply chains to catch up.
Given strength of economic data, "I certainly would be supportive of moving the end of the taper forward," he said. If inflation is still over 4% by next spring, the Fed would have to consider rate hikes, he said.
The Omicron variant could prolong some of the supply chain challenges. "On the supply side, it means the inflationary pressures will probably persist even longer," Kristin Forbes, an economics professor at MIT's Sloan School of Management, told the Reuters Next conference.
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(Reporting by Ann Saphir, Lindsay Dunsmuir and Dan Burns; Editing by Chizu Nomyama and Cynthia Osterman)
By Ann Saphir, Lindsay Dunsmuir and Jonnelle Marte