Federal Reserve Governor Waller Approves Caution on Interest Rates, 2023.
Federal Reserve Governor Christopher Waller believes that recent positive economic data gives the central bank room to be cautious when deciding on additional interest rate hikes to combat inflation.
Waller emphasized that the robust data allows them to take a careful approach and assess the situation as it unfolds.
One significant data point was the August nonfarm payrolls report, which showed stronger-than-expected job growth of 187,000 and a modest 0.2% increase in average hourly earnings, lower than anticipated.
Additionally, other reports indicated that the Fed’s preferred measure of inflation rose only 0.2% in July, and job openings decreased to their lowest level since March 2021.
Waller stressed that inflation’s central concern remains, and the recent positive reports offer optimism. However, the key is to determine whether the lower inflation is a sustained trend or a temporary anomaly.
As a generally more hawkish member of the Federal Open Market Committee, Waller has previously advocated for tighter monetary policy and higher interest rates to combat inflation, which had reached its highest level in over four decades during the summer of 2022.
However, he now believes that the recent data supports the Fed’s ability to maintain higher rates until they are certain that inflation is under control.
Waller acknowledged the need to be cautious and data-driven when considering the future of interest rate increases, emphasizing that they must avoid prematurely declaring victory over inflation. He cited previous instances in 2021 and 2022 when inflation appeared to be receding but then surged again.
Regarding market expectations, there is a high likelihood that the Fed will not raise rates at its upcoming September 19-20 meeting.
However, there is some uncertainty, with a 43.5% probability of a rate increase at the October 31-November 1 session, as indicated by CME Group’s futures pricing tracking. On the other hand, Goldman Sachs has expressed the belief that the Fed is done raising rates.
Waller believed that one more rate hike would not necessarily push the economy into a recession. He argued that there isn’t an obvious risk of significantly damaging the job market even if rates were raised once more.
Waller’s comments come shortly after Federal Reserve Chair Jerome Powell’s statement that inflation remains too high and may require further rate increases. Powell emphasized the importance of proceeding cautiously in the decision-making process.
