(Bloomberg) - Federal Reserve Governor Christopher Waller said he would support another 75-basis-point rate increase at the central bank’s July meeting should economic data come in as he expects.
“The Fed is ‘all in’ on re-establishing price stability,” Waller said Saturday in prepared remarks to a computational economics conference in Dallas.
Policy makers on Wednesday increased the federal funds rate by three quarters of a percentage point, to a range of 1.5% to 1.75%, the largest hike since 1994. Chair Jerome Powell, who has vowed to raise rates until there’s “clear and convincing” evidence that inflation is abating, told reporters at a post-meeting press conference that another 75 basis-point hike, or a 50 basis-point move, was likely at the Fed’s next meeting in July.
Officials forecast rates will rise to 3.4% by December and 3.8% by the end of 2023. Those would both be the highest levels since early 2008, when the US economy was on the cusp of the financial crisis.
“I don’t care what’s causing inflation, it’s too high, it’s my job to get it down,” Waller said during a question and answer session after his prepared remarks. “The higher rates and the path that we’re putting them on, it’s going to put downward pressure on demand across all sectors.”
Calling fears of a recession “a bit overblown,” Waller said “maybe we have to go below trend growth for six months to a year, that’s OK. Maybe unemployment has to go up 4%, 4.5% -- I think it would be 4% to 4.25%.”
“Right now we’ve not seen inflation like this in 40 years and that’s the most important thing you’ve got to worry about.”
In his speech, Waller discussed lessons learned from that crisis and the pandemic in his remarks.
The Fed took swift and aggressive monetary policy action to stem economic and financial losses during the financial crisis and returned quickly to that playbook as Covid-19 spread in March 2020 -- slashing rates to nearly zero, ramping up massive bond purchases and implementing a slew of emergency facilities to stem panic in financial markets.
“The first time for these actions was scarcely a decade ago, and there is good reason to think such a response may not be extraordinary anymore,” Waller said. Future recessions, even “typical” ones, may well require turning again to the aggressive policy actions of the past two years, he said.
As a result, he said it was important to learn lessons from the experience and acknowledged criticism that the Fed had been slow to begin normalizing policy -- it only halted bond purchases in March and stared raising rates a few days later. He blamed this on policy makers saddling themselves with overly-restrictive criteria to start tapering bond purchases, which in turn delayed rate liftoff.
“By requiring substantial further progress toward maximum employment to even begin the process of tightening policy, one might argue that it locked the Committee into holding the policy rate at the zero lower bound longer than was optimal,” Waller said. “But if we again face those challenges, we now have the additional insight that only experience can bring.”
(Updates with comment in Q&A in fifth paragraph)
By Catarina Saraiva
