Federal Reserve Gov. Chris Waller on Thursday said “inflation is not coming down as fast as I had thought,” signaling he would be open to an even bigger increase in interest rates if price pressures don’t ease more rapidly.
Waller pointed to higher household spending, a big increase in jobs and another sharp increase in consumer prices in January as evidence the economy is running too hot to cool off inflation as fast as the Fed would like.
Waller said he would scrutinize a raft of economic indicators ahead of the Fed’s next interest-setting meeting on March 21-22 before deciding whether he would support stiffer rate hikes. Chief among them are the next U.S. employment report due next week and the consumer price index.
“It could be the progress has stalled [on reducing inflation], or it is possible the numbers released last month were a blip, perhaps associated with unusually favorable weather,” Waller said in a prepared speech on Thursday.
Before the recent string of sturdy economic reports, Waller had been leaning toward just a few more hikes that would take the short-term fed funds rate to a top end of 5.1% to 5.4%.
Yet if job creation and consumer prices don’t “drop back down” again, Waller said, short-term U.S. interest rates “will have to be raised this year even more” to ensure the Fed wins the fight against inflation.”
Higher rates slow the economy and can even induce recession in a worst-case scenario.
The Fed has raised its benchmark rate from near zero one year ago to a 15-year high of 4.5%-4.75% as of February as part of a two-pronged effort to tame high inflation. The yearly increase in the CPI hit a 40-year peak of 9.1% last summer before tapering off to 6.4% in January.
Yet inflation is still running three times higher than the Fed’s 2% goal.
“After seeing promising signs of progress, we cannot risk a revival of inflation,” Waller said.
