In a recent speech in London, Federal Reserve Governor Christopher Waller shared his views on interest rate increases and the central bank’s approach to inflation. Waller stated that the Federal Reserve can afford to hold off on raising interest rates while it evaluates incoming data.
Waller emphasized the need to monitor the progress in bringing down inflation before making any definitive moves on the policy rate. He mentioned that the recent data points need to be carefully examined to determine if the central bank’s efforts to slow inflation are effective or if the economy continues to demonstrate resilience and drives prices higher.
The timing of Waller’s remarks is notable, as Federal Reserve Chair Jerome Powell is scheduled to deliver a key policy speech the following day. Waller’s comments add to the ongoing discussion among Fed officials regarding the necessity of further rate hikes. Many officials have highlighted the increase in Treasury yields as a sign of tightening financial conditions, potentially reducing the need for additional rate hikes. The 10-year Treasury yield surpassed 4.9% for the first time since 2007.
Waller acknowledged the backup in yields and mentioned that economic reports over the past several months have been overwhelmingly positive regarding inflation. Key indicators such as the consumer price index and the personal consumption expenditures price index show rolling core inflation at 3.1% and 2% on a three-month basis, respectively.
However, there is caution among officials due to past instances of misleading signals on inflation. While few Fed officials anticipate rate cuts in the future, many are considering the possibility that the current hiking cycle might be coming to an end.
Despite Waller’s generally hawkish stance on interest rates, he indicated a potential pause in the near term without making a commitment beyond that. He stated that if the real economy weakens, the Federal Reserve will have more leeway to delay further rate hikes and let the recent rise in longer-term rates have an impact. On the other hand, if the economy continues to show strength and inflation appears to stabilize or increase, additional policy tightening may be necessary.
Recent economic reports have been favorable, including a robust labor market and strong retail spending. The September nonfarm payrolls rose by 336,000, and retail spending increased by 0.7% in September, surpassing expectations.
Looking ahead, Waller highlighted that he will closely monitor various economic data, including nonresidential investment, construction spending, and the upcoming release of third-quarter gross domestic product growth figures.
The remarks by Waller provide insight into the Federal Reserve’s current perspective on interest rate increases and inflation. As the central bank prepares for its next meeting in two weeks, the evaluation of incoming data will play a crucial role in determining its policy decisions.