Federal Reserve Governor Christopher Waller said Friday that if next week’s August job report shows more than 850,000 wage increases, he would advocate taking the first steps to pull back on the Fed’s monetary policy.
“I would like to go early this fall,” Waller said in an exclusive interview with Yahoo Finance on Friday. “I don’t see any reason why we would have to wait until next year. That’s my own opinion, unless something really bad comes out in next week’s labor market report that I just don’t expect. “
The central bank is in the process of figuring out when to start slowing its monthly $ 120 billion purchases of US Treasuries and mortgage-backed securities. The so-called quantitative easing program was launched amid the COVID-19 pandemic to prop up the financial position and signal the Fed’s commitment to propping up the economy.
Waller said the employment report, due next Friday, will be the final test before calling for an official cut at the next central bank meeting on Sept. 21-22, and he’d be ready to start tapering immediately.
“Some others have said they’d like to wait and see a few more [reports]but if you adjust the number of workers for early retirement, if we get another million we will restore about 85% of the jobs lost, and that was almost seven years after the last recession, ”Waller said.
Waller acknowledged, however, that the spread of the Delta variant carries some “downside risks” but reiterated his view that the economy was resilient enough to survive.
“There will be sectors that will be particularly affected, but I think the economy will continue as before,” said Waller.
Waller’s main concern seemed to have focused on inflation.
Data from the Bureau of Economic Analysis released Friday morning showed that prices were up 4.2% year over year. Faster growth in the personal consumption expenditure index has not been observed for over 30 years.
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“I think it will be more persistent than I might have thought in May,” said Waller.
Looking ahead, Waller said ending a cut in the four to six month range would give the Fed “optimality” to hike rates in the second half of next year.
However, Waller said there would be a “much higher” bar to eventually raise short-term rates from near zero. The Fed’s guidance is aiming for an inflation target of 2% (although this target may be moderately exceeded) while at the same time reducing the deficits on maximum employment.
Earlier in the day, Fed chairman Jerome Powell had similarly said the Fed would hold back from tightening policy before the labor market had time to recover.
“It’s really important to emphasize that we have two different metrics for taper and liftoff,” said Waller.
Brian Cheung is a reporter who covers the Fed, the economy, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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