Federal Reserve Chairman Christopher Waller said on Friday he favors a quarter-percentage-point interest rate hike at the next meeting as he waits for more evidence that inflation is moving in the right direction.
Confirming market expectationsA central bank official said during a Council on Foreign Relations event in New York that the Fed may reduce the size of rate hikes.
But he also said it was not yet time to declare victory over inflation, likening monetary policy to an airplane that has quickly taken off and is now ready for a gradual decline.
“By that logic, and based on the data available at this point, there appears to be little turbulence ahead, so I now favor a 25 basis point hike at the next FOMC meeting later this month,” Waller said. according to prepared remarks. “Furthermore, we still have a long way to go to meet our 2 percent inflation target, and I expect to support further tightening of monetary policy.”
He did not specify how high he sees the stakes and was scheduled to participate in a question-and-answer session after the speech at 1:00 PM ET.
Christopher Waller, U.S. President Donald Trump’s nominee to head the Federal Reserve System, listens during a confirmation hearing before the Senate Banking Committee in Washington, D.C., Thursday, Feb. 13, 2020.
Andrew Harrer | Bloomberg | Getty Images
Other officials, such as Philadelphia Fed President Patrick Harker, point to an increase of 0.25 percentage point between January 31 and February. 1 FOMC meeting, but Waller is the most senior member to be so outspoken.
While the market and the Fed appear to be on the same page on where rates are headed in the short term, there are divergences further out.
Central bankers mostly say they see rates staying high through the end of the year, while markets see a peak in the summer and a decline soon after.
Waller said the divergence is mostly about perceptions of where inflation will go.
“The market has a very optimistic view that inflation will simply melt away. There will be flawless disinflation,” he told CNBC’s Steve Lisman during a question-and-answer session after the speech. “We have a different point of view. Inflation will not just magically melt away. Inflation will be slower and more difficult to bring down, so we should keep rates high for longer and not start cutting rates until the end of the year. .”
Waller was generally upbeat about the economy, noting that activity has slowed in some key areas such as manufacturing, wage growth and consumer spending. He emphasized that the goal of the Fed is not to “stop economic activity”, but rather to bring it back to balance so that inflation starts to fall.
In recent months, measures of inflation such as the consumer price index and the Fed’s core personal consumption expenditure index have reached their peak last summer. But he noted that while the core CPI was down 0.1%, the index excluding food and energy was still up 0.3% and “still too close to where it was a year ago.”
“So while you can take a month or three months of data and paint a rosy picture, I would caution against that,” he said. “The shorter the trend, the bigger the grain of salt when swallowing the future story.”
But Waller said he still sees a “soft landing” for the economy, a scenario that involves “progress in the fight against inflation without serious damage to the labor market.”
“We’ve been successful so far, and I remain optimistic that this progress can continue,” he said.
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