“It makes sense to get going sooner rather than later,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a call with reporters on Thursday, suggesting that the moves could come very soon. “I think March would be a definite possibility.”
And officials have signaled that once rate increases start, they could promptly begin to shrink their balance sheet — where they hold the bonds they have purchased to stoke growth throughout the pandemic downturn. Doing that would help to lift longer-term interest rates, reinforcing rate increases and helping to further slow lending and spending.
Economists speculated following the jobs report that the new figures made an imminent rate increase even more likely, and that the central bank might even be prodded to remove its economic support more quickly as wages take off.
“We think that today’s report adds to the case for the Fed to kick off its hiking cycle in March,” researchers at Bank of America wrote following the release of the data. “The economy appears to be operating below maximum employment and inflation remains sticky-high.”
Krishna Guha, an economist at Evercore ISI, argued that the combination of rapidly declining unemployment and heady wages might even prompt central bankers to increase interest rates faster than once every three months — the fastest pace they increased in their last set of interest rate increases, which took place from 2015 to 2018.
“The Fed might end up having to hike at a pace faster than the baseline one hike per quarter,” Mr. Guha wrote.
Investors will get a chance to hear from key Fed officials themselves next week. Jerome H. Powell, whom President Biden has renominated as Fed chair, has a confirmation hearing on Tuesday before the Senate Banking Committee. Lael Brainard, now a governor and Mr. Biden’s pick to be vice chair, has a hearing on Thursday.
Article source: https://www.nytimes.com/2022/01/07/business/economy/jobs-interest-rates-federal-reserve.html
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