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The Fed: Fed’s Rosengren says conditions may be in place for tapering bond purchases by year-end, with first interest rate hike by late 2022

The U.S. economy may reach the economic benchmarks laid out for slowing down asset purchases by the Federal Reserve before the end of the year, followed by an increase in policy interest rates by the end of 2022, Boston Fed President Eric Rosengren said Friday.

The Fed is buying $120 billion per month of Treasurys and mortgage-backed securities, along with holding interest rates close to zero, to support the economy.

In December, the Fed said it would keep buying bonds until there was “substantial further progress” towards the Fed’s goals of a healthy labor market and stable 2% inflation and position that was reiterated at the the Fed’s last policy meeting last week.

In an interview with Yahoo Finance, Rosengren said that the Fed has perhaps made more progress that it would like on pushing inflation higher but that more progress was needed to heal the labor market.

“I think its quite likely that the ‘substantial further progress’ criteria, at least in my own personal view, will likely be met prior to the beginning of next year,” Rosengren said.

The Fed hasn’t laid out a strategy for tapering its bond purchases and when the first rate hike may follow.

In 2014, the last time the Fed tapered, it took most of the year to taper and didn’t raise rates until December 2015.

Rosengren said he thought the conditions the Fed has set out for the first rate hike could be met “around the end” of 2022.

According to the Fed’s “dot plot” released last week, the majority of Fed officials don’t see the first rate hike coming until 2023, where officials have penciled in two hikes. Seven of the 18 top Fed officials see the first move in 2022.

Rosengren wouldn’t reveal exactly where his dot was on the chart.

“I do expect its quite possible that we see that [criteria for rate hike] by the end of next year, but it does depend on whether the economy progresses as strongly as I’m expecting,” he said.

Rosengren is not a voting member of the Fed’s interest rate committee this year but he will be in 2022.

The Boston Fed President said he thought that inflation would be temporary.

“I expect there will be a surge in prices that we’ve been seeing this spring. It will continue maybe a little longer than we were expecting. But I think the best guess going forward is that, when we get into next year, we’re going to be seeing inflation just barely above 2%,” Rosengren said.

U.S. stocks traded mostly higher on Friday with the S&P 500 index
SPX,
+0.33%

hitting an intraday record high.

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