(Bloomberg) -- The Federal Reserve should begin tapering its bond-buying program next month, though interest-rate increases are probably “still some time off,” Fed Governor Christopher Waller said.
“While there is still room to improve on the employment leg of our mandate, I believe we have made enough progress such that tapering of our asset purchases should commence following our next FOMC meeting, which is in two weeks,” Waller said Tuesday in remarks prepared for a virtual speech, referring to the Nov. 2-3 meeting of the policy-setting Federal Open Market Committee.
“I believe the pace of continued improvement in the labor market will be gradual, and I expect inflation will moderate, which means liftoff is still some time off,” he added, with the caveat that “if my upside risk for inflation comes to pass, with inflation considerably above 2% well into 2022, then I will favor liftoff sooner than I now anticipate.”
Fed officials are getting ready to begin winding down the bond-buying program they put in place last year in the early days of the pandemic, which currently has the U.S. central bank purchasing $120 billion a month of U.S. Treasuries and agency mortgage-backed securities. They broadly agreed to start the process in either mid-November or mid-December, according to minutes of their last meeting on Sept. 21-22.
Projections published at the conclusion of that gathering showed the committee was evenly split on whether increases in its benchmark interest rate, which is currently near zero, would be necessary next year. Since then, amid unfavorable news about the outlook for inflation, investors in money markets have pulled forward their expectation for the timing of a rate increase to mid-2022.
Waller said it would be important to monitor measures of inflation expectations in household surveys and financial markets to determine the path forward for policy makers. He pointed to an index maintained by Fed economists “which distills a signal from both surveys and market-based inflation gauges.”
“At this point, at least, it remains near its average over the past decade,” Waller said. “This gives me some comfort that the recent run of high inflation readings has not led to an unanchoring of inflation expectations.”
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