(Bloomberg) — Federal Reserve Governor Christopher Waller, one of the more hawkish officials at the US central bank, has joined other policymakers in backing another moderation in the size of rate increases when they next gather.
(Bloomberg) — Federal Reserve Governor Christopher Waller, one of the more hawkish officials at the US central bank, has joined other policymakers in backing another moderation in the size of rate increases when they next gather.
“I currently favor a 25 basis-point increase at the FOMC’s next meeting at the end of this month,” Waller said Friday at the Council on Foreign Relations in New York, referring to the rate-setting Federal Open Market Committee. “Beyond that, we still have a considerable way to go toward our 2% inflation goal, and I expect to support continued tightening of monetary policy.”
Waller’s speech was the last scheduled public comments before the US central bank enters a quiet period ahead of its Jan. 31-Feb. 1 policy meeting. Other officials have also supported slowing the pace of tightening again amid cooler inflation, including Philadelphia Fed President Patrick Harker, who repeated that message earlier on Friday.
Investors expect them to move by a quarter point, according to pricing in futures markets, and cut rates before the end of the year.
The Fed raised rates by a half point last month to a target range of 4.25% to 4.5%, following four 75 basis-point moves, after starting near zero in March. Fed forecasts last month showed officials expecting to raise rates to 5.1% and keep them there through 2023.
Waller said the difference between the market and the Fed’s so-called dot plot reflected a more optimistic view among investors that inflation would quickly fade. And while he’d be delighted if that was the case, he wasn’t going to count on it.
“We’ve got to wait and see through the summer how inflation is going,” he said. “If the markets are right and inflation is coming down, and it looks like wages and everything are falling into line, that is great news, I’ve got no problem saying we should think about changing policy.”
“We have a different view, that inflation is not going to just miraculously melt away,” he said, adding that the Fed also has to insure that it doesn’t rebound and that means holding rates at a higher for longer to manage that risk.
Inflation, by the Fed’s preferred measure rose 5.5% for the 12 months through November, a step down from the 6.1% October pace, while prices minus food and energy rose 4.7% versus 5% the previous month.
“Job one is maintaining the progress we are making in lowering inflation, and moderation in consumer spending will support that progress,” Waller said, noting that he expects the decline in real incomes and higher borrowing costs to also help return inflation “more promptly” to the central bank’s 2% target.
Waller has been a forceful advocate of maintaining restrictive policy and requiring substantial evidence of cooling inflation before easing up on the tightening campaign. On Friday, he sounded optimistic that the Fed can accomplish disinflation without severe damage to the labor market or a recession.
“Six months ago, when inflation was escalating and economic output had flattened, I argued that a soft landing was still possible — that it was quite plausible to make progress on inflation without seriously damaging the labor market,” he said. “So far, we have managed to do so, and I remain optimistic that this progress can continue.”
Waller noted that despite economic growth, the labor market remains strong. He called that a positive development, because it “shows that jobs and income can hold up to the effects of higher interest rates, helping the FOMC continue its efforts to lower inflation to our 2% goal by further tightening monetary policy.”
(Updates with comment from Waller throughout.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.