The president of the Atlanta Federal Reserve said the central bank probably should end its bond-buying program by early next spring if the economy keeps growing rapidly and inflation stays high.
“I do think we need to tapering and winding down the bond purchases,” Raphael Bostic said Thursday at an event on Reuters NEXT. “Let’s get it over sooner than later.”
The U.S. central bank last month began winding down an economic-stimulus strategy that involves buying billions of dollars of bonds each month to keep interest rates low. The Fed had been planning to end the program by June.
Yet Bostic and an increasing number of other Fed officials, including Chairman Jerome Powell, have indicated they might end the program even sooner, perhaps by the end of March.
Bostic said he was not prepared for now to consider raising interest rates before the bond-buying program came to an end.
“It is good for us to do one thing at a time,” he said.
Bostic was among the first senior Fed officials to recognize that the current spike in inflation was worse than the central bank originally believed.
Inflation has jumped 6.2% in the past 12 months — the fastest pace in 31 years — based on the consumer price index. Prices have risen 5% in the same span using the Fed’s preferred PCE price gauge.
The Atlanta Fed president in October was the first senior Fed official to say the central bank to should junk the use of the word “transitory” to describe the surge in inflation this year. Powell followed suit a month later.
Bostic is worried inflation will persist longer and remain higher than the Fed has been forecasting.
The longer the current bout of high inflation persists, Bostic said, the bigger the danger that consumers and businesses will come to expect higher inflation.
If inflation doesn’t subside quick enough next year, “it might be appropriate for us to pull forward a lift-off,” he said, referring to an increase in interest rates.
The Fed has kept a key short-term interest rate near zero early in the pandemic.
The one big caveat: The emergence of the omicron strain of the coronavirus. Bostic said he will be watching omicron closely to see what effect it has on the economy.
“Hard to say. We are very much in the early stages,” he said when asked about how much economic damage it could cause.
Bostic is a voting member this year of the Fed’s interest-rate setting Federal Open Market Committee.
He is also reportedly being considered by the Biden administration for an open seat on the Fed board in Washington, but Bostic said he has not had any conversations with the White House so far.