Fed Chairman Waller says officials could wait before reacting to interest rates

Fed Governor Christopher Waller: Officials can'wait, watch and see' before responding to interest rates

Federal Reserve Governor Christopher Waller suggested Wednesday that the central bank could afford to hold off on interest rate hikes while it monitors progress in its efforts to reduce inflation.

With the Fed set to meet again in two weeks, Waller said he is weighing recent data points to see whether the central bank will succeed in curbing demand and slowing inflation, or whether the economy will remain resilient and stronger drive prices.

“As of today, it is too early to say,” he said in prepared remarks for a speech in London. “That’s why I believe we can wait and watch how the economy develops before taking any final steps on the policy rate path.”

The remarks come a day before Fed Chairman Jerome Powell is due to give a key policy speech in New York.

In recent days, several Fed officials have said that rising Treasury yields indicate that financial conditions are tightening, potentially making further interest rate hikes unnecessary. The Yield on 10-year government bonds topped 4.9% on Wednesday, a first since 2007.

In fact, Waller noted the rise in yields and said economic reports in recent months have been “overwhelmingly positive” when it comes to inflation. Widely watched indicators such as the consumer price index and the Fed’s preferred personal consumption expenditures price index show three-month rolling core inflation of 3.1% and 2%, respectively, he noted.

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However, officials are worried about fake inflation hoaxes that have confounded previous policy decisions. Few or no Fed officials see interest rate cuts in the future, but many are inclined to the idea that the current rate hike cycle may be over.

Waller has been one of the more hawkish Fed officials, meaning he favors higher interest rates and more restrictive monetary policy. As governor, he automatically gets a vote on the Federal Open Market Committee, which sets interest rates. His comments indicated an imminent standstill, without any further commitment.

“Should the real side of the economy weaken, we have more room to wait for further rate hikes and let the recent rise in longer-term interest rates do some of our work,” he said. “But if the real economy continues to show underlying strength and inflation appears to be stabilizing or reaccelerating, further policy tightening is likely to be necessary, despite the recent rise in longer-term interest rates.”

Recent economic reports showed a strong labor market, with nonfarm payrolls increasing by 336,000 in September. A report from the Commerce Department on Tuesday showed retail spending rose 0.7% in September, beating inflation and Wall Street estimates.

Waller said he would keep an eye on that data, as well as figures on nonresidential investment such as factories and construction spending, and take a first look at third-quarter gross domestic product growth next week.

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