Fed Board of Governors member Christopher Waller said on Friday that the “whole point” of the Fed’s decision to accelerate the pace of its QE taper was to make the March Fed meeting “live” for a first rate hike. Under his base case scenario, a first rate hike in March is very likely, though it could be pushed back to May.
“There is no reason to delay the adjustment of balance sheet.”
“The balance sheet around 20% of GDP seems reasonable, compared to current around 35%… can go sooner and faster this time.”
“Could allow some run off of balance sheet perhaps in a meeting or two after liftoff.”
“Can go faster on balance sheet given flow of on RRP facility.”
“Would like to achieve maximum employment but will have to make a trade-off if inflation continues high.”
“Fed could hike a couple of time then see how inflation behaves, at this point, members do not expect it to come down.”
“Does not think it remotely possible that the economy would be thrown into a recession by three rate increases in 2022.”
“Expects unemployment rate could be as low as 3.7% by March, with all pre-pandemic jobs recovered once accounting for retirements.”
“Three hikes in combination with falling inflation means real rates will be tightening.”
“Switch in dots reflected “amazing” realignment of views among policymakers.”
“Balance sheet runoff by summer would also help remove accommodation, ease need of further rate increases.”
Waller’s hawkish comments appear to be lending some support to the dollar, with the DXY pushing to session highs above 96.50 in recent trade, though to be fair, the dollar had already been on the front foot even prior to the remarks.