By Howard Schneider

WASHINGTON, (Reuters) – An increase in interest rates will be likely “shortly” after the Federal Reserve stops buying bonds in March. With inflation at an alarmingly high level and the employment market close to maximum, Federal Reserve Governor Chris Waller stated on Friday.

Fed agrees to extend its pandemic-era bondbuying through March. This is a precursor for raising rates.

Waller stated that rate increases may also be required sooner than anticipated.

He stated in prepared remarks that the Forecasters Club of New York would determine the appropriate time for an increase in the policy interest rate. However, my expectations regarding inflation and labor markets indicate that I expect a gradual increase in federal funds rates shortly after asset purchases are completed.

Waller stated, “Like many others, I anticipated that markets would quickly adjust to the economic recovery” and that U.S. labor market and global supply would return to normal. Waller stated, “Clearly this isn’t going to happen.”

The new Omicron version poses risks of slow growth and slower recovery. However, he stated that Omicron does not have a guarantee against inflation and will only be available if there is a shortage in labor or goods.

This week, the Fed indicated that it might need to increase rates by 0.25 percent this year to address inflation at multidecade-high levels and above the central bank’s target of 2%.

Waller was one of the first Fed officials to suggest that the end of pandemic-era stimuli should be done sooner rather than later due to the possibility that inflation will prove more persistent than originally expected. This view was adopted by Waller’s colleagues as price rose and fell.