Waller wants the Fed to “wait out” the central bank before deciding on further rate hikes
Federal Reserve Governor Chris Waller said Wednesday that he would like the central bank to wait for any further interest rate increases while it assesses the direction of the U.S. economy and inflation.
“As of today, it is too early to know,” Waller said in a speech in London.
“Based on this, I think we can wait, watch and see how the economy develops before taking decisive steps on the interest rate path. If the real side of the economy declines, we will have more room to wait for any further interest rate increases and let the recent rise in interest rates go long.” “Terms do some of our work.”
Waller’s comments come just days before a 10-day blackout period leading up to the Fed’s next rate-setting meeting on November 1. Waller seemed to suggest that the central bank should pause again while officials wait to see what trends take hold.
But Waller warned that if the economy continues to show strength and inflation appears to be stabilizing or accelerating, further rate hikes will likely be needed despite the recent rise in long-term interest rates.
Investors will get more clarity on Thursday when Federal Reserve Chairman Jay Powell is expected to speak in New York at 12 noon ET. Investors expect the central bank to leave its benchmark interest rate unchanged, within a range 5.25%-5.50%.
Waller said in his speech on Wednesday that there are two scenarios: the first is where the economy slows – in which case the Fed can keep interest rates steady.
The second scenario includes strong demand as the economy continues to grow by about 2%, which may lead to higher inflation.
In that case, Waller says more interest rate hikes would be needed.
Waller is looking ahead to the third-quarter GDP reading due next week, noting that economic growth appears to have been higher in the July-September period than it was earlier in the year. The question is whether this acceleration will continue, he said.
He also pointed to September retail sales, which indicated continued strong consumer spending. Meanwhile, Waller said the latest three-month average of new jobs of 266,000 is not much different from the three-month average at the end of 2022 of 284,000, saying job growth remains exceptionally strong and has not slowed much this year. .
“I’ve been waiting a while for tightening financial conditions to lead to a significant slowdown in spending, and I’ve been consistently surprised by the resilience of consumer spending,” he said.