According to Atlanta Fed President Raphael Bostic, high inflation and a strong recovery will force the Federal Reserve to raise interest rates at least three times this year, starting as early as March, and will necessitate a rapid rundown of Fed asset holdings to draw excess cash out of the financial system.

Bostic said, "there is a risk that inflation will be elevated for an extended period of time, and we need to respond promptly, clearly, and aggressively. If things keep going the way they are," he said, "March would be a reasonable possibility for the first of a series of interest rate hikes to combat inflation that is well above the Fed's 2% target.”

He said that he does not believe the surge in new coronavirus infections will derail the recovery, but rather that inflation will increase further, necessitating a fourth quarter-point rate hike in 2022, rather than slowing and allowing the Fed to relax.

Fed's Bostic says he remains open to faster taper, 1 or 2 hikes in 2022

His comments underscored the Fed's turn toward battling inflation, which was solidified at a December meeting where officials accelerated plans to raise interest rates and began to reduce their holdings of US Treasury bonds and mortgage-backed securities accumulated during the pandemic.

In a statement about the Fed's balance sheet management, Bostic said the central bank should be aggressive there as well, allowing its holdings to decline by at least $100 billion per month and preparing to quickly withdraw at least $1.5 trillion from financial markets that he considers "excess liquidity."

"I'd like to think we'd be able to move fast and get out of this emergency situation," Bostic said. "The tool and the motivation is pretty well-understood. It should go faster for sure,” he said, adding that the process should be completed in "a couple of years."