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The Federal Reserve needs to implement two more quarter-point rate hikes this year to bring inflation under control, a top official at the US central bank said on Thursday.
In an intervention that pushed back against market prices suggesting the Fed will end its monetary tightening after just one hike, Christopher Waller backed one hike this month and another before the end of 2023.
Waller, a governor who is one of the most hawkish members of the central bank̵[ads1]7;s interest rate committee, said he could push for another hike in September or later this year depending on incoming economic data.
“If inflation does not continue to show progress and there are no signs of a significant slowdown in economic activity, another 25 basis point increase should come sooner rather than later, but that decision is for the future,” he said. the event hosted by New York University.
In the question-and-answer session that followed the event, Waller emphasized that the Fed was not conducting policy in a “mechanical way” and that the September meeting was a “live one.” Two more encouraging inflation reports, like the one released this week, could indicate the need to stop after the July move, he said.
His comments will be one of the last public statements by a Fed official before the “blackout” period ahead of the next two-day policy meeting starting on July 25.
The central bank is widely expected to resume its aggressive monetary policy tightening campaign later this month after refraining from a rate hike in June, lifting the benchmark interest rate to a new target range of 5.25-5.5 percent.
Waller said a rate hike in June would have been justified, but that refraining from a hike reflected “cautious risk management” at a time of uncertainty about the extent of the credit crunch stemming from the Fed’s existing tightening and the regional banking crisis earlier this year.
He spoke after a series of better-than-expected economic data, suggesting that the most stubborn price pressures are starting to ease more noticeably.
The latest consumer price index report released on Wednesday indicated that “core” inflation, which strips out volatile food and energy prices, grew at a more muted pace than expected, a trend that many economists expect to continue in the coming months. Waller said on Thursday that the data was “welcome news, but one data point does not constitute a trend”.
He added: “I will need to see this improvement sustained before I am confident that inflation has abated.”
Wall Street economists and traders are mostly betting that the rate hike at the end of the month will be the last in this cycle.
In his speech, Waller pushed back on the idea held by many of his colleagues that the net effect of the Fed’s tightening so far had not yet fully rippled through the economy.
In an interview with the Financial Times this week, John Williams, president of the New York Fed, said: “We’re not getting the full effects of the restrictive policies we’ve put in place yet.”
But Waller said “the bulk of the effects of last year’s austerity have passed through the economy already”.
“To me, this means that the policy tightening we have implemented this year has been appropriate, and also that more policy tightening will be needed to bring inflation back to our 2 percent target,” he said.
Waller lost a key hawkish ally on Thursday after James Bullard said he would step down as president of the St Louis Federal Reserve Bank to join Purdue University’s business school as its first dean.
Bullard, who has been at the Fed for 33 years, established himself as an advocate for the U.S. central bank to act aggressively to curb what has become one of the most acute inflation problems it has faced in decades.
He was among the first to call on the Fed to scale back its ultra-loose monetary policy in the wake of the pandemic and a vocal proponent of the central bank’s extended string of big rate hikes last year.
As a voting member of the Federal Open Market Committee last year, Bullard regularly dissented on various policy decisions, most recently in March 2022, when he argued that the US Federal Reserve should raise interest rates by half a point instead of a quarter point. decided.
He has recused himself from all monetary policy matters until he leaves, including the upcoming meeting at the end of the month.
Kathleen O’Neill Paese, who served as first vice president of the St Louis Fed, will step in as interim president.