Fed Official Supports Raising Interest Rates at Fast Clip ‘for Several Meetings’
A Federal Reserve official said Monday he would support raising interest rates in half-percentage-point increments for several more meetings, adding to a growing debate over how far and fast the central bank should push up borrowing costs to combat high inflation.
The U.S. central bank raised interest rates by a half percentage point, or 50 basis points, on May 4, the first half-point increase since 2000. Officials have signaled similar moves are very likely at their next two meetings, in June and July.
“I support tightening policy by 50 basis points for several meetings,” Fed governor
Christopher Waller
said in remarks delivered in Frankfurt on Monday. He added that he wouldn’t take such increases “off the table until I see inflation coming down closer to our 2% target.”
The Fed raised its policy rate this month to a range between 0.75% and 1%, and investors expect the Fed to raise interest rates by at least another 1.75 percentage point this year.
“This expectation represents a significant degree of policy tightening” that would be consistent with the Fed’s promise to reduce inflation, said Mr. Waller. “If we need to do more, we will.”
With officials largely united on the case for half-point increases at the Fed’s June and July policy meetings, the debate has shifted to what should occur after that.
A few regional Fed presidents have said they would support pressing ahead with an aggressive pace of rate increases in September if monthly inflation readings remain elevated, and Mr. Waller’s comments at a university lecture aligned himself with that bloc on Monday.
A handful of Fed presidents have recently said the central bank could dial down its rate increases to the more traditional quarter-point increment by September because they expect the economy and inflation will slow. Atlanta Fed President
Raphael Bostic
last week told reporters he could see a case for pausing rate increases entirely in September.
In recent public comments, Fed Chairman
Jerome Powell
has suggested the central bank won’t slow its rate increases until it sees clear evidence that inflation is declining.
Mr. Powell indicated in an interview with The Wall Street Journal on May 17 that a pause in September is unlikely because the Fed isn’t likely to reach a more neutral rate setting until the fourth quarter. Moreover, even after rates reach such a setting, “it’s not a stopping point. It’s not a ‘looking-around’ point,” Mr. Powell said.
Mr. Powell is set to meet with President Biden at the White House on Tuesday to discuss the economy.
On Monday, Mr. Waller said he favors raising interest rates by the end of this year above a neutral setting, or to a level high enough to deliberately slow the economy and reduce demand.
Mr. Waller said he wasn’t interested in engaging in a debate over whether high inflation is being driven primarily by supply issues or stronger demand because he said the rate-setting Federal Open Market Committee needed to focus now on preventing inflationary psychology from taking root.
“The details have no bearing on the fact that we are not meeting the FOMC’s price stability mandate,” he said.
Once the public comes to believe inflation will be higher in the future, “it is very difficult and economically painful” for the Fed to reduce inflation, he said. “I cannot emphasize enough that my FOMC colleagues and I are united in our commitment to do what it takes to bring inflation down and achieve the Fed’s 2 percent target,” Mr. Waller said.
The Fed official focused much of his lecture presenting analysis of why the Fed might be able to slow economic growth without triggering increases in unemployment that only occurs during a recession.
The high level of job vacancies is evidence of a very tight labor market, and Mr. Waller said a scenario in which the central bank reduces those vacancies while pushing the unemployment rate up by just a few tenths of a percentage point “is just as plausible, if not more so” than a scenario in which unemployment increases substantially.
Traditionally, once the unemployment rate has risen by a half percentage point, it has increased by much more than that because the economy has slid into recession.
“The past is not always prescriptive of the future. The current situation is unique,” Mr. Waller said.
Write to Nick Timiraos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
A Federal Reserve official said Monday he would support raising interest rates in half-percentage-point increments for several more meetings, adding to a growing debate over how far and fast the central bank should push up borrowing costs to combat high inflation.
The U.S. central bank raised interest rates by a half percentage point, or 50 basis points, on May 4, the first half-point increase since 2000. Officials have signaled similar moves are very likely at their next two meetings, in June and July.
“I support tightening policy by 50 basis points for several meetings,” Fed governor
Christopher Waller
said in remarks delivered in Frankfurt on Monday. He added that he wouldn’t take such increases “off the table until I see inflation coming down closer to our 2% target.”
The Fed raised its policy rate this month to a range between 0.75% and 1%, and investors expect the Fed to raise interest rates by at least another 1.75 percentage point this year.
“This expectation represents a significant degree of policy tightening” that would be consistent with the Fed’s promise to reduce inflation, said Mr. Waller. “If we need to do more, we will.”
With officials largely united on the case for half-point increases at the Fed’s June and July policy meetings, the debate has shifted to what should occur after that.
A few regional Fed presidents have said they would support pressing ahead with an aggressive pace of rate increases in September if monthly inflation readings remain elevated, and Mr. Waller’s comments at a university lecture aligned himself with that bloc on Monday.
A handful of Fed presidents have recently said the central bank could dial down its rate increases to the more traditional quarter-point increment by September because they expect the economy and inflation will slow. Atlanta Fed President
Raphael Bostic
last week told reporters he could see a case for pausing rate increases entirely in September.
In recent public comments, Fed Chairman
Jerome Powell
has suggested the central bank won’t slow its rate increases until it sees clear evidence that inflation is declining.
Mr. Powell indicated in an interview with The Wall Street Journal on May 17 that a pause in September is unlikely because the Fed isn’t likely to reach a more neutral rate setting until the fourth quarter. Moreover, even after rates reach such a setting, “it’s not a stopping point. It’s not a ‘looking-around’ point,” Mr. Powell said.
Mr. Powell is set to meet with President Biden at the White House on Tuesday to discuss the economy.
On Monday, Mr. Waller said he favors raising interest rates by the end of this year above a neutral setting, or to a level high enough to deliberately slow the economy and reduce demand.
Mr. Waller said he wasn’t interested in engaging in a debate over whether high inflation is being driven primarily by supply issues or stronger demand because he said the rate-setting Federal Open Market Committee needed to focus now on preventing inflationary psychology from taking root.
“The details have no bearing on the fact that we are not meeting the FOMC’s price stability mandate,” he said.
Once the public comes to believe inflation will be higher in the future, “it is very difficult and economically painful” for the Fed to reduce inflation, he said. “I cannot emphasize enough that my FOMC colleagues and I are united in our commitment to do what it takes to bring inflation down and achieve the Fed’s 2 percent target,” Mr. Waller said.
The Fed official focused much of his lecture presenting analysis of why the Fed might be able to slow economic growth without triggering increases in unemployment that only occurs during a recession.
The high level of job vacancies is evidence of a very tight labor market, and Mr. Waller said a scenario in which the central bank reduces those vacancies while pushing the unemployment rate up by just a few tenths of a percentage point “is just as plausible, if not more so” than a scenario in which unemployment increases substantially.
Traditionally, once the unemployment rate has risen by a half percentage point, it has increased by much more than that because the economy has slid into recession.
“The past is not always prescriptive of the future. The current situation is unique,” Mr. Waller said.
Write to Nick Timiraos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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