MNI BRIEF: Fed's Waller Warns Faster Taper May Be Necessary

The Federal Reserve may need to wind down its asset purchase program faster next year with the economy "rapidly approaching" maximum employment and inflation expectations escalating, and conditions for hiking near-zero interest rates are also approaching, Fed Governor Christopher Waller said Friday.

"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," he said in remarks prepared for a Center for Financial Stability event in New York. "The next few months will be critical, however, in determining how the tapering process plays out."

The economy is only 2 million jobs short of where it was prior to the pandemic if early retirements are excluded, Waller said, adding "the unemployment rate could be below 4 percent before too long."

Meanwhile, inflation has "escalated substantially this year, along with a significant rise in inflation expectations." If expectations keep rising, a wage-price spiral could take hold. "This possibility is a risk to the inflation outlook that I'm watching carefully," he said.

MNI has reported that the FOMC's December rate forecasts will likely show most officials seeing at least one hike next year and perhaps several others preferring two or three increases (MNI: Fed's December Dots To Signal 2022 Hike, Ex-Staffers Say).

"The condition for inflation has been met and we are making great strides towards achieving the employment leg of our mandate," he said of a potential rate increase. "the timing of liftoff is any time after both of these conditions have been met" on maximum employment and inflation.