Federal Reserve Governor Christopher Waller said Friday he favors a quarter-point rate hike at the next meeting as he waits for more evidence that inflation is moving in the right direction.
Confirming market expectations, the central bank official said at a Council on Foreign Relations event in New York that the Fed can limit the size of its rate hikes.
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But he also said that now is not the time to declare victory over inflation, likening monetary policy to a plane that shot up quickly and is now ready for a gradual decline.
“And in line with this logic and based on the data available at this point, there seems to be little turbulence coming, so I currently favor a 25 basis point hike at the next meeting of the FOMC at the end of this month,” said Waller. said in prepared remarks. “Moreover, we still have a significant way to go towards our inflation target of 2 percent, and I expect to support the continued tightening of monetary policy.”
He did not specify how much he sees rates rising, and was scheduled to participate in a question-and-answer session after the 1 p.m. ET speech.
Christopher Waller, US President Donald Trump’s nominee for governor of the Federal Reserve, listens during a Senate Banking Committee confirmation hearing in Washington, DC, on Thursday, February 13, 2020.
Andrew Harrer | Bloomberg | Getty Images
Other officials, such as Patrick Harker, president of the Philadelphia Fed, have pointed to a 0.25 percentage point increase on January 31-February. 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 when it comes to short-term rates, the rates diverge further.
Central bankers have largely said they see interest rates at high levels through the end of the year, while markets see a peak in the summer and a fall soon after.
Waller said the divergence largely has to do with perceptions of where inflation is headed.
“The market has a very optimistic view that inflation is just going to melt away. The flawless disinflation will happen,” he told CNBC’s Steve Liesman during a post-speech question-and-answer session. “We have a different view. Inflation will not just miraculously melt away. It will be a slower, more difficult slog to get inflation down and that is why we need to keep interest rates high longer and not start to lowering interest rates.” .”
Waller was generally optimistic about the economy, noting that activity has slowed in a number of key areas, such as manufacturing, wage growth and consumer spending. He stressed that the Fed’s goal is not to “stop economic activity,” but rather to bring it back into balance so that inflation can begin to fall.
In recent months, inflation gauges such as the consumer price index and the Fed’s preferred core price index for personal consumption expenditure have bounced back from their peaks of last summer. But he noted that while the overall CPI fell 0.1%, the index excluding food and energy was still up 0.3% and “is still too close to the level it was a year ago.”
“So while it’s possible to take a month or three months of data and paint a rosy picture, I caution against doing so,” he said. “The shorter the trend, the bigger the grain of salt when swallowing a story about the future.”
But Waller did say he still sees a “soft landing” possible for the economy, a scenario that would see “inflation progression without serious harm to the labor market.”
“So far we have managed to do this, and I remain optimistic that this progress can continue,” he said.