Federal Reserve Governor Christopher Waller said Friday that if the August jobs report next week shows more than 850,000 payroll gains, he would advocate taking the first steps in pulling back the Fed’s easy money policies.
“I would like to go early this fall,” Waller told Yahoo Finance in an exclusive interview on Friday. “I don’t see any reason that we would need to wait until next year. That’s my own view, unless something really bad comes out in the job market report next week, which I just don’t expect to happen.”
The central bank is in the midst of figuring out when to start slowing its $120 billion-a-month pace of U.S. Treasury and agency mortgage-backed securities purchases. The so-called quantitative easing program was launched in the midst of the COVID-19 pandemic to support financial conditions and signal the Fed’s commitment to supporting the economy.
Waller said the employment report due next Friday will be the final test before calling for an official taper at the central bank’s next policy-setting meeting on Sept. 21 and 22. Waller said if the report shows between 850,000 to 1 million payroll gains for the month of August, he would be ready to start the taper right away.
“Some others have stated that they would like to wait and see a few more [reports], but when you adjust the labor force jobs for early retirements, if we get another million we will recover about 85% of the jobs that were lost and that took almost seven years after the last recession,” Waller said.
Still, Waller acknowledged that the spread of the Delta variant presents some “downside risks,” but reiterated his view that the economy looked resilient enough to get through it.
“There’ll be sectors that will get a particular hit from it, but I think the economy is going to proceed just like it has been,” Waller said.
Waller’s main concern appeared to be focused on inflation.
Data from the Bureau of Economic Analysis released Friday morning showed prices rising by 4.2% on a year-over-year basis. A faster pace of growth in the Personal Consumption Expenditure Index hasn’t been seen in over 30 years.
“I do think it’s going to be more persistent than I may have thought back in May,” Waller said.
Looking ahead, Waller said finishing a taper in the range of between four to six months would give the Fed “optimality” to raise interest rates in the second half of next year.
But Waller said there would be a “much higher” bar for eventually lifting short-term interest rates from near-zero. The Fed's guidance aims at a 2% inflation target (allowing moderate overshoots of that target), all while reducing shortfalls from maximum employment.
“ThIt’s really important to stress that we have two different sets of metrics for taper and for liftoff,” Waller said.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.