The Reasonability of Rate Increases So Debate! Fed Waller Appears to Comment


Federal Reserve Governor Christopher Waller on Tuesday dismissed speculation that interest rates may need to be raised further, saying the latest inflation data was "reassuring" and that the US central bank's policy rate had been set accordingly.

After three months of stronger-than-expected price pressures that raised concerns that progress had stalled, "recent economic data suggests that tight monetary policy is helping to cool aggregate demand and inflation data for April suggests that progress toward 2% may have resumed," Waller said in a statement prepared for a presentation at the Peterson Institute for International Economics. "The data shows that inflation is not rising, and I believe that further increases in interest rates may not be necessary."

The Fed's policymakers have become cautious about their outlook on inflation and monetary policy in recent months, and Waller, like many of his fellow policymakers, did not repeat his view from a recent speech that a rate cut is likely later this year.

The labor market remains strong, he said, and although consumer price inflation slowed in April after the first three months of the year. It was "moderate" progress, with core inflation as measured by the personal consumption expenditure price index likely running at an annual rate of 3.4% in the latest three months.

Even so, he also said he saw some signs of a slowdown, pointing to flat retail sales in April, an increase in credit card and car loan delinquencies. This also includes a much-publicized survey of non-manufacturing businesses that shows a decline in activity. Job creation has also slowed, and the unemployment rate rose to 3.9% in April.

"The economy now appears to be growing closer to what the Committee expected," Waller said, referring to the Federal Open Market Committee which sets central bank policy. "However, without significant weakness in the labor market, I would need to see several more months of good inflation data before I would feel comfortable supporting an easing in the stance of monetary policy."

The Fed has kept its benchmark policy rate in the 5.25%-5.50% range since last July.

Traders expect the central bank to implement the first rate cut in September, and see a more than half chance of a second cut at the Fed's final meeting of the year in December.