Citing high U.S. inflation and a job market that's nearing its full potential at least while the COVID-19 pandemic continues, Federal Reserve policymakers on Friday laid out a case for raising interest rates soon after the central bank ends its bond-buying program in March.
And it wasn't just the Fed's inflation-focused hawks who were doing it. San Francisco Fed President Mary Daly, who as little as a month ago was calling for the central bank to show patience in its policy stance to allow more workers to reenter the labor market, said she would support two or three rate hikes next year, and did not rule out raising borrowing costs in March when asked about a start date.
"If we see that the economy is delivering high inflation, even if we expect that inflation to not persist past the pandemic, and we see the labor market is extremely tight, even though we don't expect that to be true past the pandemic, then the policy action that would be appropriate is, after tapering, to raise the interest rate."
The central bank initiated its bond-buying program in 2020 to shelter the economy from the fallout from the pandemic. Until it recently began tapering the purchases, it was buying $120 billion in Treasuries and mortgage-backed securities each month. And, Waller added, that the central bank should also begin trimming its overall bond holdings by next summer, a move that could push up long-term borrowing costs and add an extra layer of policy tightening to slow the economy.
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