Fed's Waller: Fed should start tapering asset purchases following its November meeting

Federal Reserve Governor Christopher Waller was making remarks on Tuesday and outlining the case for why Fed officials may have misdiagnosed the current pace of price increases as temporary.

''If high inflation continues through the end of the year the Fed may have to adopt a more aggressive policy response to control it,'' he said. 

Waller also said he too still believes the economy has seen the worst of the current coronavirus wave, that labour and other supply shortages will ease over time, and that "the escalation of inflation will be transitory.

''I still see supply and demand working here to moderate price increases so that inflation moves back toward 2%," the Fed's established target. That would mean any change in the Federal Reserve's key policy interest rate "is still some time off."

Waller said he feels the risks are shifting, and he is now "greatly concerned" the current fast rise in prices may continue.

"The next several months are critical for assessing whether the high inflation numbers we have seen are transitory," Waller said in remarks prepared for delivery at the Stanford Institute for Economic Policy Research.

"If monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022."

"Firms are reporting that they have more pricing power now than they have had in many years, as consumers seem to be accepting higher prices," he said.

Market implications

The greenback has struggled against its rivals as measured by the DXY index. These currencies, such as GBP, have been recently boosted by expectations of sooner-than-previously expected interest rate hikes. Additionally, US yields have appeared to stabilize on which has likely reduced demand for the greenback.