Federal Reserve Governor Christopher Waller suggested that the central bank can delay interest rate hikes as it assesses progress in reducing inflation. Waller stated that recent data points are being evaluated to determine if the Fed’s efforts to lower demand and slow inflation are effective, or if the economy’s resilience is driving further price increases. He believes it is too early to make definitive decisions on the policy rate and advocates for a wait-and-see approach.
These remarks were made just before Fed Chair Jerome Powell’s potentially influential policy speech in New York. Several Fed officials have recently indicated that rising Treasury yields indicate tightening financial conditions, potentially making additional rate hikes unnecessary. On Wednesday, the 10-year Treasury yield exceeded 4.9%, a level not seen since 2007.
Waller acknowledged the increase in yields and highlighted positive economic reports that consistently show inflation. The consumer price index and the Fed’s preferred personal consumption expenditures price index both indicate rolling core inflation, with figures of 3.1% and 2% respectively on a three-month basis.
However, officials remain cautious about misleading signals on inflation that have affected past policy decisions. While few if any Fed officials foresee rate cuts, many believe that the current cycle of rate hikes may be coming to an end. Waller, known for his more hawkish stance, holds a vote on the rate-setting Federal Open Market Committee. He suggests a near-term pause without making a commitment beyond that.
If the economy weakens, Waller says there will be more flexibility to delay further rate hikes and rely on the recent rise in longer-term rates. However, if the economy continues to demonstrate strength and inflation stabilizes or accelerates, additional tightening of policy is likely necessary. Recent economic reports have shown a strong labor market and robust retail spending.
Waller emphasizes the importance of monitoring various economic indicators like nonresidential investment and construction spending, as well as the upcoming release of third-quarter gross domestic product growth figures.
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