The chairman of the Atlanta Federal Reserve said the central bank should probably end its bond-buying program early next spring if the economy continues to grow rapidly and inflation remains high.
“I think we need to reduce and stop bond purchases,” Rafael Bostic said at an event on Reuters Next on Thursday. “Let’s end this as soon as possible.”
The US central bank last month began kicking off an economic-stimulus strategy that involves buying billions of dollars worth of bonds each month to keep interest rates low. The Fed was planning to end the program by June.
Yet a growing number of other Fed officials, including Bostic and Chairman Jerome Powell, have indicated they may end the program even sooner, perhaps by the end of March.
Bostic said he was not ready to consider raising interest rates before the bond-buying program ended.
“It’s good for us to do one thing at a time,” he said.
Bostic was among the first senior Fed officials to acknowledge that the current spike in inflation was worse than the central bank had originally believed.
Inflation, based on the Consumer Price Index, has risen 6.2% over the past 12 months – the fastest pace in 31 years. Over the same period, prices have risen 5% using the Fed’s preferred PCE price gauge.
In October the Atlanta Fed chairman was the first senior Fed official to say the central bank should scrap the use of the word “transient” to describe an increase in inflation this year. Powell followed a month later.
Bostic is concerned that inflation will last longer and be higher than the Fed predicted.
Bostic said the longer the current battle for high inflation lasts, the higher the expectation for consumers and businesses to expect higher inflation.
If inflation doesn’t subside fast enough next year, it may be appropriate for us to go ahead with the lift-off, he said, referring to a hike in interest rates.
The Fed has kept a key short-term interest rate close to zero at the start of the pandemic.
One big caveat: the emergence of the Omicron strain of coronavirus. Bostic said he would be watching Omicron closely to see how it impacts the economy.
“It is hard to tell. We are at a very early stage,” he said when asked how much economic damage it could cause.
Bostic is a voting member of the Federal Open Market Committee on the Fed’s interest-rate setting this year.
He is reportedly being considered by the Biden administration for an open seat on the Fed board in Washington, but Bostic said he has not held any talks with the White House so far.