Federal Reserve Governor Christopher Waller has stated that the central bank can wait before taking action on interest rates while it monitors progress in its efforts to tackle inflation. As the Fed prepares for its upcoming meeting, Waller is analyzing recent data to assess whether the bank’s measures are effectively reducing demand and slowing inflation, or if the economy continues to show strength and drives prices upwards.
Waller expressed his views in a speech in London, stating that it is currently too early to determine the outcome. Therefore, he believes that the central bank can take a cautious approach, waiting and observing how the economy evolves before making any definitive decisions on interest rates.
These remarks come just before Fed Chair Jerome Powell delivers a potentially significant policy speech in New York. In recent days, other Fed officials have suggested that rising Treasury yields indicate that financial conditions are tightening, potentially eliminating the need for further rate hikes. On Wednesday, the 10-year Treasury yield surpassed 4.9%, reaching a level not seen since 2007.
Waller acknowledged the backup in yields and highlighted that recent economic reports overwhelmingly indicate positive inflation trends. Notably, indicators such as the consumer price index and the Fed’s preferred personal consumption expenditures price index demonstrate rolling core inflation at 3.1% and 2% respectively on a three-month basis.
Despite these indications, officials remain cautious due to past instances of inflation-driven uncertainty. While few, if any, Fed officials foresee rate cuts in the future, many are leaning towards the belief that the current cycle of rate hikes may be coming to an end.
Waller, known for his more hawkish stance, has voiced his preference for higher rates and tighter policy. As a governor, he holds a voting position on the rate-setting Federal Open Market Committee. His remarks suggest a potential temporary pause in rate hikes without making any long-term commitments.
He stated that if the real side of the economy weakens, there will be more flexibility to delay further rate hikes and allow the recent increase in longer-term rates to have an impact. However, if the economy continues to demonstrate strength and inflation stabilizes or accelerates, additional policy tightening may be necessary, despite the recent rise in longer-term rates.
Recent economic reports have shown a robust labor market, with nonfarm payrolls increasing by 336,000 in September. Additionally, a Commerce Department report revealed strong retail spending, surpassing inflation and Wall Street estimates with a 0.7% increase in September.
Waller emphasized that he will closely monitor this data, as well as nonresidential investment figures and construction spending. Furthermore, next week’s release of the first look at third-quarter gross domestic product growth will be crucial in shaping future decisions.
As the Fed continues to navigate the complexities of inflation and economic indicators, Waller’s remarks provide insights into the central bank’s approach and potential future actions regarding interest rates.
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