Support 50 bps hikes at next several meetings, policy rate should be above neutral by year’s end

Fed Board of Governors member Christopher Waller said on Monday that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters.

Waller said he is not taking 50 bps rate hikes off of the table until inflation comes down closer to the Fed’s 2.0% target and that, if inflation is stubbornly high, he is prepared to do more. Reductions in the size of the Fed’s balance sheet are equivalent to a couple of additional 25 bps rate hikes, he noted.

Additional Remarks:

“I am optimism that the strong US labor market can handle higher rates without a significant increase in unemployment.”

“I don’t know how soon supply constraints will ease.”

Inflation remains alarmingly high.

Longer-run inflation expectations have moved up to a level consistent with underlying inflation a little above 2%.

Core inflation is not coming down enough to the Fed’s 2% goal anytime soon.

The economy continues to power along at a healthy pace.

I don’t expect the Q1 drop in output to be repeated.

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