Federal Reserve Governor Chris Waller said in a speech Thursday that he expects the Fed will need to make further interest rate hikes to bring down inflation more quickly if economic data comes in as he expects.
“If economic data continues to arrive as expected, I anticipate additional increases to support a faster return of inflation to our 2% target,” Waller said at the Central Bank of the Republic of Turkey Economic Forum in Istanbul. “But there is some flexibility as to when these increases will occur. These increases do not have to take place in consecutive meetings, but they must be implemented within an acceptable time frame.”
Waller noted that a convergence of factors has morphed into persistent inflationary forces, including hopes for a quick end to the Middle East conflict and warnings that low inventories and damaged infrastructure could keep oil prices high through 2027. He also pointed out that the development of artificial intelligence has dramatically driven up consumer prices for high technology and that projections of its magnitude have skyrocketed. Additionally, he added, ongoing trade conflicts threaten new tariffs that could once again put upward pressure on inflation.
“When the first inflation numbers for August came in just before the September FOMC meeting, it was impossible to deny that inflation was still too high and not making enough progress toward our goal,” Waller said.
Learn more: How the Fed’s Rate Decision Affects Your Bank Accounts, Loans, Credit Cards, and Investments
Waller sees economic activity strengthening in the second half of this year and says he is “not very concerned” that higher interest rates threaten to significantly slow the economy.
“But I fear that the recent acceleration in inflation – soon to be five and a half years above the FOMC target – will cause consumers, investors and price-setting firms to revise upward their expectations for future inflation.”
He stressed that he sees the economy in roughly the same situation as it was at the time of the Fed’s policy meeting in mid-September.
“Overall, the new data reinforces my view that the labor market is stable and inflation is too high,” he said. “At least in the short term, policy will be focused on the inflation aspect of our mandate.”
Waller also made a point of explaining how he believes the Fed should communicate its interest rate expectations. He doesn’t think choosing to say nothing or giving a clear indication of what the Fed will do is how the central bank should communicate. Instead, he believes a middle ground approach of reporting the magnitude of rate hikes over a certain time interval, without specifying the pace or magnitude of the hikes, would provide some flexibility while still keeping the public informed.
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