Fed's Bostic says three hikes, fast balance sheet runoff needed for inflation fight

High inflation and a strong recovery will require the Federal Reserve to raise interest rates at least three times this year, beginning as soon as March, and warrant a rapid rundown of Fed asset holdings to draw excess cash out of the financial system, Atlanta Fed President Raphael Bostic said.

"There is a risk inflation is likely to be elevated for an extended period of time and we need to respond directly, clearly and aggressively," Bostic told Reuters in an interview on Monday. "If things continue the way they are March would be a reasonable possibility," for the first of what would be a series of interest rate increases to offset inflation running far above the Fed's 2% target.

From 2017 to 2019, when the Fed was shrinking its balance sheet years after the end of the 2007 to 2009 recession, it phased the pace of decline in slowly, capped it at $50 billion per month, and ultimately decreased its balance by only $600 billion before financial markets signaled the system did not have enough cash reserves at hand.

Read More: https://www.reuters.com/business/feds-bostic-says-three-hikes-fast-balance-sheet-runoff-needed-inflation-fight-2022-01-11/