Federal Reserve Governor Christopher Waller said he plans to continue raising interest rates in half a percentage point increments until inflation moves back towards the Federal Reserve’s target.
“I support tightening the policy by another 50 basis points for several meetings,” he said in Frankfurt on Monday. “Specifically, I’m not taking the 50 basis point hike off the table until I see inflation getting closer to our 2 percent target,” he said at an event hosted by the Institute for Monetary and Financial Stability.
US Federal Reserve officials hiked interest rates by half a point this month to cool the hottest inflation in 40 years and have signaled they will hike again by the same amount at their June and July meetings. They will also begin shrinking their massive balance sheet at a monthly pace of $47.5 billion starting Wednesday and growing to $95 billion in September in a process also known as quantitative tightening.
Officials anticipate a combination of higher interest rates and QT to rebalance supply and demand that have spiraled out of control during the pandemic. Waller said that various economic models suggest the total balance sheet trimming would roughly correspond to “a couple of 25 basis point rate hikes,” but cautioned that such estimates are very uncertain.
Data released on Friday showed that the Fed’s favorite price indicator of price pressure, the personal consumption spending index, rose 6.3 percent over the past month from April 2021 — more than triple the Fed’s 2 percent target . The data also showed US consumer spending holding up as households dive into savings.
High inflation has angered Americans and hurt Joe Biden’s approval ratings. The President will hold a rare meeting with Powell in the Oval Office on Tuesday to discuss the state of the American and global economy, according to a White House statement.
Waller, who has become one of the more hawkish members of the Federal Reserve since his appointment as governor in December 2020, said no one should doubt the Fed’s commitment to containing price pressures.
“By the end of this year, I am in favor of the key interest rate being at a level above the neutral level,” said Waller, referring to the interest rate level, which neither accelerates nor slows down the economy. “If the data suggests inflation is stubbornly high, I’m ready to do more.”
Officials forecast a neutral interest rate of around 2.4 percent in March, according to the midpoint of their quarterly forecasts, which will be updated in June.
Financial markets have seen volatility in recent weeks as investors fret over the risk that the Fed could trigger a recession by tightening too aggressively, even as price pressures cloud prospects for corporate earnings.
But talk of a September pause — which Atlanta Fed Chair Raphael Bostic “could make sense” on May 23 if inflation cools — has fueled speculation that the Fed might not end up raising borrowing costs as much , as some had feared.
Those hopes were boosted after minutes of the Fed’s March 3-4 meeting were released last week. May showed most officials were ready to take a more flexible approach later this year after “speeding up” the removal of their political support.
Waller said his own plan for rate hikes was “roughly in line” with expectations in financial markets.
“Markets expect tightening by about 2.5 percentage points this year,” he said. “This expectation represents a significant amount of monetary tightening, consistent with the FOMC’s commitment to bringing inflation back under control, and if we need to do more, we will.”
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