Fed Official Says Central Bank Must Contain Inflation

Mr. Waller said he was optimistic that the Fed could contain inflation without sparking a sharp increase in the unemployment rate that has often followed past efforts by the central bank to slow down the economy.

The Fed official contrasted the current situation with the period of high inflation of the early 1980s, when then Chairman Paul Volcker pushed rates to levels that triggered a sharp increase in joblessness and a double-dip recession. Mr. Waller said inflation was more difficult to fix then because the Fed had allowed higher price growth to fester for a decade. “That’s not the case” now, he said.

Fed officials unanimously agreed to raise their benchmark short-term interest rate by a half percentage point to a range between 0.75% and 1% at their policy meeting last week. Fed Chairman

Jerome Powell

hinted that additional half-point rate increases, which the central bank hadn’t approved since 2000, are likely at policy meetings in June and July.

Mr. Waller said the central bank had to balance two goals of promoting a strong labor market with returning prices closer to the Fed’s 2% inflation target.

“Inflation is a tax that everybody pays. Unemployment is a tax a fraction of the population pays,” he said. “We’re trying to do something—by reducing inflation—that benefits everybody. But in the process, we have to be fully aware that there might be a subsection of the population that has to bear that burden.”

Mr. Waller said there is no “magical formula in a textbook” that will guide central bank officials on that trade-off. “You kind of have to take your chances and see where it goes,” he said.

Write to Nick Timiraos at [email protected]

Mr. Waller said he was optimistic that the Fed could contain inflation without sparking a sharp increase in the unemployment rate that has often followed past efforts by the central bank to slow down the economy.

The Fed official contrasted the current situation with the period of high inflation of the early 1980s, when then Chairman Paul Volcker pushed rates to levels that triggered a sharp increase in joblessness and a double-dip recession. Mr. Waller said inflation was more difficult to fix then because the Fed had allowed higher price growth to fester for a decade. “That’s not the case” now, he said.

Fed officials unanimously agreed to raise their benchmark short-term interest rate by a half percentage point to a range between 0.75% and 1% at their policy meeting last week. Fed Chairman

Jerome Powell

hinted that additional half-point rate increases, which the central bank hadn’t approved since 2000, are likely at policy meetings in June and July.

Mr. Waller said the central bank had to balance two goals of promoting a strong labor market with returning prices closer to the Fed’s 2% inflation target.

“Inflation is a tax that everybody pays. Unemployment is a tax a fraction of the population pays,” he said. “We’re trying to do something—by reducing inflation—that benefits everybody. But in the process, we have to be fully aware that there might be a subsection of the population that has to bear that burden.”

Mr. Waller said there is no “magical formula in a textbook” that will guide central bank officials on that trade-off. “You kind of have to take your chances and see where it goes,” he said.

Write to Nick Timiraos at [email protected]