Federal Reserve Governor Christopher Waller expressed optimism about the recent surge in economic data, which will provide the central bank with the opportunity to proceed cautiously in deciding on future interest rate hikes to tackle inflation.
In an interview with CNBC’s Steve Liesman on “Squawk Box”, Waller stated, “That was an incredible week of data we had, and the most important thing is that it allows us to be vigilant. We can patiently observe the data to assess how things unfold.”
One of the significant data points highlighted was the nonfarm payrolls report for August, revealing a growth of 187,000 jobs, surpassing expectations. However, average hourly earnings rose only 0.2% for the month, lower than anticipated.
Other reports earlier in the week indicated that the Fed’s preferred inflation indicator increased by 0.2% in July, while job openings, a crucial measure of labor market tightness, declined to their lowest level since March 2021.
Regarding inflation, Waller emphasized, “The primary concern is inflation. We received two consecutive positive reports.” The critical aspect now is to determine whether low inflation is a lasting trend or a temporary aberration.
Waller is recognized as one of the more hawkish members of the Federal Open Market Committee, advocating for tighter monetary policy and higher interest rates to combat inflation that reached its highest level in over 40 years during the summer of 2022.
While Waller welcomed the recent reports on the direction of prices, he believed they also signaled that the Fed could maintain higher rates until it is confident that inflation is under control.
When asked if the rate hikes can be halted, Waller replied, “That depends on the data. We have to wait and see if this inflation trend continues. We have been caught off guard before, with inflation decreasing in 2021 and then rising again. In late 2022, we witnessed inflation decline, only to have it revised away.”
He added, “So, I want to exercise caution before declaring that we have successfully handled inflation. We need to observe a few more months of consistent trajectory before we can conclude that we are done taking action.”
Market expectations suggest a high probability that the Fed will not raise rates at its Sept. 19-20 meeting. However, there remains a 43.5% chance of an increase at the Oct. 31-Nov. 1 session, according to CME Group’s futures pricing analysis, indicating some uncertainty. Goldman Sachs recently projected that the Fed is finished with hikes.
Waller argued, “I don’t think one more hike would necessarily lead the economy into a recession, even if we felt it was necessary. It’s not evident that we would seriously harm the job market by raising rates one more time.”
Waller’s statements come shortly after Fed Chair Jerome Powell acknowledged that inflation remains high and might require additional rate increases, but the policymakers will exercise caution before making any moves.
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