Fed Governor Waller backs a quarter-point interest rate hike at the next meeting

Fed Governor Waller backs a quarter-point interest rate hike at the next meeting

US President Donald Trump’s candidate for Federal Reserve Governor Christopher Waller listens during a Senate Banking Committee confirmation hearing in Washington, DC, Thursday, February 13, 2020.

Andrés Harrer | Mayor Bloomberg | fake images

Federal Reserve Governor Christopher Waller said Friday that he favors a quarter percentage point interest rate hike at the next meeting as he awaits more evidence that inflation is headed in the right direction.

Confirming market expectations, the central bank official said during a Council on Foreign Relations event in New York that the Fed may reduce the size of its rate hikes.

But he also said this is not the time to declare victory over inflation, likening monetary policy to an airplane that rose quickly and is now poised for a gradual descent.

“And by this logic and based on the data available at the moment, there appears to be little turmoil ahead, which is why I currently favor a 25 basis point hike at the next FOMC meeting later this month.” Waller said. said in prepared comments. “Beyond that, we still have a considerable way to go toward our 2 percent inflation target, and I look forward to supporting continued monetary policy tightening.”

He did not specify how high he thinks the rates are headed, and was scheduled to participate in a question-and-answer session after the 1 p.m. ET speech.

Other officials, such as Philadelphia Fed President Patrick Harker, signaled a 0.25 percentage point increase in the rate from January 31 to February 2. 1 FOMC meeting, but Waller is the highest-ranking member to be so explicit.

While the market and the Fed appear to be on the same page as to where rates will go in the short term, there is further divergence.

Central bankers have largely said they see rates staying high through the end of the year, while markets see a spike in the summer and then a decline soon after.

Waller said the divergence is largely due to the perception of where inflation will go.

“The market has a very bullish view that inflation is going to go away. Impervious disinflation is going to happen,” he told CNBC’s Steve Liesman during a question-and-answer session after the speech. “We take a different view. Inflation won’t just miraculously disappear. It will be slower and harder to bring inflation down and therefore we have to keep rates high longer and not start cutting them by the end of the year.” .”

Overall, Waller was optimistic about the economy, noting that activity has slowed in some key areas, including manufacturing, wage growth and consumer spending. He stressed that the Fed’s goal is not to “stop economic activity” but to bring it back into balance so that inflation can start to fall.

In recent months, inflation gauges such as the consumer price index and the Fed-preferred Core Personal Consumption Price Index have come off their peaks of last summer. But he noted that while the headline CPI declined 0.1%, the index excluding food and energy rose 0.3% and “is still too close to where it was a year ago.”

“So while it is possible to take a month or three months of data and paint an optimistic picture, I would caution against doing it,” he said. “The shorter the trend, the bigger the grain of salt in swallowing a story about the future.”

But Waller said he still sees a “soft landing” as possible for the economy, a scenario that would see “inflation progress without seriously hurting the job market.”

“So far, we have achieved this and I remain optimistic that this progress can continue,” he said.

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