On Friday, Federal Reserve Governor Christopher Waller echoed recent sentiments from his colleagues, saying he expects a big hike in interest rates later this month.
He also said policymakers should stop trying to guess the future and instead stick to what the data says.
“Looking ahead to our next meeting, I support another significant increase in the policy rate,” Waller said in remarks prepared for a speech in Vienna. “But, looking further ahead, I can’t tell you about the appropriate policy path. The range of peaks and the speed at which we get there will depend on the data we receive on the economy.”
These comments are similar to recent remarks by Fed Chairman Jerome Powell, Vice Chairman Lael Brainard and others, who said they were committed to bringing inflation down.
Markets strongly expect the central bank to raise its benchmark borrowing rate by 0.75 percentage points, which would be the third consecutive move of this magnitude and the fastest pace of monetary tightening since the The Fed began using the benchmark funds rate as its primary policy tool in the early 1990s.
Although Waller did not commit to a particular increase, his comments had a mostly hawkish tone that indicated he would support the 0.75-point move, as opposed to a half-point increase.
“Based on all the data we’ve received since the last FOMC meeting, I think the political decision at our next meeting will be straightforward,” he said. “Due to the strength of the labor market, there is currently no trade-off between the Fed’s employment and inflation targets, so we will continue to fight inflation aggressively.
If the Fed implements the three-quarter point hike, it would take benchmark rates to a range of 3% to 3.25%. Waller said if inflation doesn’t come down for the rest of the year, the Fed may have to raise the rate “well above 4%.”
He further suggested the Fed discontinue its practice of providing “forward guidance” on what its future path would be and what factors would come into play to dictate those moves.
“I think forward guidance becomes less useful at this point in the tightening cycle,” he said. “Future decisions on the magnitude of additional rate increases and where the policy rate will go in this cycle should be determined solely by incoming data and its implications for economic activity, employment and inflation.”
Waller pointed to welcome signs that inflation is moderating from its highest level in more than 40 years.
The personal consumption expenditure price index, which is the Fed’s favorite gauge of inflation, rose 6.3% from a year ago in July – 4.6% excluding food and energy . That’s still well above the central bank’s long-term 2% target, and Waller said inflation remained “broad-based” even with the recent slowdown.
He also noted that inflation appeared to ease at one point last year, then accelerated sharply to hit the consumer price index which was up 9% year-on-year. another at some point.
“The consequences of being cheated by a temporary slowdown in inflation could be even greater now if another misjudgment hurts the Fed’s credibility. So until I see a significant and persistent moderation in rising core prices, I will support significant further steps to tighten monetary policy,” he said.
Kansas City Fed President Esther George also spoke on Friday, echoing concerns about inflation but also advocating a more deliberate approach to policy tightening.
“As unsatisfactory as it may be, weighing on the top policy rate is probably just speculation at this point,” she said.
“We will have to determine the course of our policy by observation rather than by reference to theoretical models or pre-pandemic trends,” George added. “Given the likely delays in transmitting tighter monetary policy to real economic conditions, this argues for stability and resolve over speed.”
George was the only member of the Federal Open Market Committee to vote against June’s three-quarter-point rate hike, instead advocating a half-point move, although she voted for the rise in July.
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