Fed Governor Waller said the Fed will only “hit the brakes” if inflation continues to fall.
In this round of tightening cycle, the Fed is facing a key decision, should it slow down the pace of interest rate hikes, or continue to tighten sharply?
Fed Governor Waller believes thatThe Fed may consider slowing the pace of interest rate hikes at its next meeting, but the fight against inflation will not stop and will continue for some time.
On Sunday, Waller, a permanent FOMC voter in office, told an economic conference hosted by UBS, according to media reports:
Markets should focus on the “end point” of rate hikes, not the “speed” of each rate hike.
The Fed “has a long way to go” before it stops raising rates, which will depend on inflation.
Inflation continues to fall, the Fed will “hit the brakes”
Regarding the current situation, Waller said:
We’re at a point where we can start thinking about slowing down, but we’re not relaxing…
The market should stop focusing on speed and start focusing on where the end point will be.
The October U.S. inflation report released last week showed that both the CPI and the core CPI slowed more than expected. Waller believes thatInflation was lower than expected in October, which is good news, but only a point-in-time data, and other similar data will be needed to prove that inflation is slowing.
Waller said October’s 7.7% year-on-year increase in the CPI was still strong, even if the next data showed inflation would shrink to 0.5% from three-quarters.
From this, Waller stated:
We need to see inflation continue to drop before we really start thinking about hitting the brakes.
This is in line with the position of several other senior Fed officials. Last Thursday, a number of senior Fed officials expressed their support for slowing the pace of interest rate hikes, while emphasizing their determination to curb high inflation,Point out that a slower pace of rate hikes does not imply easier policy.In general, the statements of senior Fed officials are generally dovish.
Where does the rate hike end?
When asked if rates would rise above 5%, Waller replied,That will depend on how inflation plays out, and now inflation dictates where that number ends up going.
San Francisco Fed President Daly also said in the interview that interest rates are likely to peak at at least 5%.
In September, the median expectation among officials was that interest rates would reach 4.5% by the end of this year and a peak of 4.6% next year, the current rate hike cycle.That means a 50 basis point hike in December and a final 25 basis point hike next year. The dot plot will be updated next month.
In addition, the recent wave of layoffs in the United States, analysts and economists warned that monetary tightening will further increase the risk of recession. Last month, U.S. Senate Finance Committee Chairman Brown “urged” Fed Powell to be “cautious” when raising interest rates and shrinking the balance sheet, otherwise millions of Americans who are suffering from high inflation will lose their jobs.
But Waller believes that while people are talking about an economic collapse and financial market collapse, it’s not being seen at the moment.
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