Federal Reserve Governor Christopher Waller today said that rapid improvement in the labor market and “deteriorating inflation data” have pushed him toward favoring a faster pace of asset purchase tapering. He added that the next few months will be critical in determining how the tapering plays out.
“If COVID or some other factor substantially slows the recovery, hindering the progress toward maximum employment, the [Federal Open Market Committee] could slow the taper,” Waller said during an industry event. “But if the economy makes quick progress toward maximum employment or inflation data show no signs of retreating from their currently high readings, the committee may choose to speed up the taper.”
Regarding the timing of the increase of the federal funds rate, Waller said that of the committee’s two conditions for liftoff, inflation has been meet and “great strides” are being made toward maximum employment.
Whenever the committee ultimately decides to raise the federal funds rate, Waller said that monetary policy will still be providing an “extraordinary” support for the economy. “Short-term interest rates will still be very low, and the large amount of securities holdings on the Fed’s balance sheet will continue to put significant downward pressure on longer-term interest rates,” he said.