Federal Reserve Governor Christopher Waller on Friday echoed the sentiments of his colleagues, saying he expects a big rate hike later this month.
He also said that politicians should stop trying to guess the future and instead stick to what the data says.
“As I look forward 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 out, I can’t tell you the right policy. The peak area and how quickly we’ll move there will depend on data we’ll receive about the economy.”
Those comments are similar to recent comments by Fed Chair Jerome Powell, Vice Chair Lael Brainard and others, who said they are resolute in their efforts to bring down inflation.
Markets strongly expect the central bank to raise its benchmark interest rate by 0.75 percentage points, which would be the third consecutive move of that magnitude and the fastest pace of monetary tightening since the Fed began using the benchmark interest rate as its main policy tool in the early 1[ads1]990s. the number.
While Waller did not commit to a particular increase, his comments had a mostly hawkish tone indicating he would support the 0.75 point increase, as opposed to a half point increase.
“Based on all the data we’ve received since the FOMC’s last meeting, I think the policy decision at our next meeting will be easy,” he said. “Because of the strong labor market, right now there is no trade-off between the Fed’s employment and inflation targets, so we will continue to aggressively fight inflation.
If the Fed implements the three-quarter dot hike, it will take benchmark interest rates up to a range of 3%-3.25%. Waller said that if inflation does not ease through the rest of the year, the Fed may have to take interest rates “well above 4%.”
He further suggested that the Fed move away from its practice of providing “forward guidance” about what its future path would be and the factors that would come into play in dictating those moves.
“I think forward guidance becomes less useful at this stage of the tightening cycle,” he said. “Future decisions on the size of further rate hikes and the target for the policy rate in this cycle should be determined solely by the incoming data and their implications for economic activity, employment and inflation.”
Waller pointed to welcome signs that inflation is moderating from its highest peak in more than 40 years.
The personal consumption expenditures price index, which is the Fed’s preferred gauge of inflation, rose 6.3% from a year ago in July — 4.6% excluding food and energy. That remains well above the central bank’s 2% long-term target, and Waller said inflation remains “rampant” even with the recent easing.
He also noted that inflation appeared to be slowing at one point last year, then turned sharply upward to where the consumer price index rose 9% year-on-year at one point.
“The consequences of being fooled by a temporary softening in inflation could be even greater now if another misjudgment damages the Fed’s credibility. So until I see a meaningful and sustained moderation in the rise in core prices, I would support taking significant further steps to tighten into monetary policy, he said.
Kansas City Fed President Esther George also spoke on Friday, reiterating concerns over inflation but also advocating a more deliberate approach to policy tightening.
“Unsatisfying as it may be, weighing in on the highest policy rate at this point is probably just speculation,” she said.
“We need to determine the course of our policy through observation rather than referring to theoretical models or pre-pandemic trends,” George added. “Given the likely delays in the implementation of tighter monetary policy to real economic conditions, this argues for stability and purposefulness over speed.”
George was the only member of the Federal Open Market Committee to vote against June’s three-quarters rate hike, favoring a half-point move instead, even though she voted for the July hike.