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An official at the Federal Reserve recently indicated that the US central bank is likely to keep its benchmark interest rate unchanged at its September policy meeting. The official, Christopher Waller, who is known for his hawkish stance and has a voting role in every policy meeting, stated that the current economic data does not require immediate monetary tightening.
Waller mentioned that the Fed is well-prepared to proceed cautiously with further monetary tightening, following what he called a “great week of data”. In an interview with CNBC, he stated, “There’s no urgent need to take immediate action. We can wait for the data and assess the situation.”
These comments align with the message delivered by Fed chair Jay Powell at the central bank’s annual symposium in Jackson Hole, Wyoming, last month. The latest labor market reports indicate that while the demand for workers remains strong, it is gradually slowing down in the world’s largest economy.
After raising the benchmark interest rate by over 5 percentage points since March 2022, the Federal Reserve is now observing more credible signs of inflation returning to its long-standing target of 2%. However, the deceleration in inflation has been, and will likely continue to be, uneven and unpredictable.
One of the recent data releases is the Fed’s preferred inflation gauge, the core personal consumption expenditures index, which showed a 4.2% annual increase in July. The federal funds rate currently stands between 5.25% and 5.5%.
Waller emphasized his close attention to incoming inflation data. While the past two months have shown positive reports, he acknowledged the possibility that the ongoing moderation could be a temporary fluctuation. He commented, “We’ve had similar experiences in the past. I want to be cautious in claiming victory over inflation until we see consistent trends in the data.”
Inflation reports indicating a monthly increase of only 0.2% in consumer prices would signal a favorable situation for the Fed.
As of June, most officials projected that the fed funds rate would peak between 5.5% and 5.75% this year, suggesting one more quarter-point rate increase. Although many economists and market participants believe that the Fed has already completed its phase of raising interest rates, officials are open to further action if economic growth surpasses expectations.
Powell and other policymakers have cautioned that if economic growth continues to outperform expectations, additional tightening might be necessary.
Waller, however, disagreed with the notion that reducing inflation would lead to significant job losses and pose a risk of recession. He stated that the recent data supports the likelihood of a “soft landing” scenario, where the job market remains stable even with one more rate increase.
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