Dec 2 (Reuters) - Federal Reserve policymakers on Thursday
sounded sanguine about the economic impact of the latest
COVID-19 variant, but flagged rising inflation in remarks that
suggested growing consensus for an earlier end to bond buys and,
perhaps, earlier interest rate hikes next year.
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
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, "theres 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 Ive penciled
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
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.
To watch the ReutersNext conference please register here https://reutersevents.com/events/next/
(Reporting by Ann Saphir, Lindsay Dunsmuir and Dan Burns;
Editing by Chizu Nomyama and Cynthia Osterman)