Fed governor backs ‘significant increase’ in benchmark rate
A Federal Reserve governor later this month backed “another significant hike” in the Federal Reserve’s policy rate, saying the economy’s resilience gives officials the “flexibility to be aggressive” in the fight. against inflation.
The comments from Christopher Waller, who sits on the Federal Open Market Committee, come on the last day officials can speak publicly ahead of their next policy meeting.
“The fears of a recession beginning in the first half of this year have dissipated and the robust U.S. job market gives us the flexibility to be aggressive in our fight against inflation,” he said at an event hosted by the Institute for Advanced Studies. . in Austria.
“Based on what I know today, I support a significant hike at our next meeting on September 20-21 to get key rates to levels that clearly limit demand,” he added.
Unlike previous meetings, most policymakers have resisted approving any specific policy action ahead of the meeting, leaving open the debate on whether the Fed will implement a third consecutive 0.75 percentage point rate hike or switch to implementing a increase of half a point.
In recent days, expectations have grown that the central bank will opt for the more aggressive option, which would lift Federal Funds interest rates to a new target range of 3 percent to 3.25 percent.
Waller this week became the last top official to highlight the Fed’s commitment to eradicating high inflation and prematurely highlighting the risks of the central bank’s easing policy. If inflation does not decrease or rise further this year, he added that the key rate will “probably” have to rise well above 4 percent.
Earlier on Friday, James Bullard, the aggressive president of the St. Louis Fed, told Bloomberg TV that he is leaning “stronger” toward a 0.75 percentage point rate hike. Esther George, president of the Kansas City Fed, who also spoke on Friday, said that by taking “deliberate” action, the Fed could prevent higher inflation from entrenching.
“While I welcome promising news about inflation, I don’t see any compelling evidence yet that inflation is moving in a meaningful and sustained manner along a trajectory to reach our 2 percent target,” Waller said. “The consequences of being fooled by a temporary easing of inflation could now be even greater if another miscalculation damages the Fed’s credibility.”
Waller’s comments echo those of Chairman Jay Powell, who spoke on Thursday. While Powell did not comment on the magnitude of the next rate hike, he said the Fed “must act immediately and forcefully now, as we have done and we must continue until the job is done.”
Lael Brainard, the vice-chairman, issued a similar statement on Wednesday, saying the Fed is “in this matter for as long as it takes to bring inflation down”.
However, she balanced those comments by highlighting a number of forces that could help ease inflationary pressures so that the Fed may not have to act as aggressively as once feared. She also noted the inevitable shift “at some point” to consider the risks of over-tightening policies.
An inflation report will be released ahead of the September meeting, with economists expecting a decline in the consumer price index, both on a monthly and annual basis.
Waller said Friday that future decisions about both the size of additional rate hikes and the end point of this tightening cycle “should be determined solely by the incoming data.”