Federal Reserve Governor, Christopher Waller, advocated for a cautious approach towards further adjustments in the policy rate and federal funds rate target range, in a speech delivered in London on Wednesday. Waller hinted at maintaining the current rates in the upcoming policy meeting, preceding Fed Chairman Jerome Powell's views that are expected to be shared before the communication blackout ahead of the November 1st decision.
Over the past 19 months, the Fed has increased its benchmark interest rate from near-zero during the pandemic to a range of 5.25%-5.5% to control inflation. Despite an earlier forecast of another 25 basis point hike this year, derivative market traders now anticipate this more likely to happen in December.
Waller outlined two possible economic trajectories that could influence future interest rate decisions. One scenario involves an economic slowdown leading to decreased inflation and stable rates. The alternative trajectory foresees sustained growth demanding more rate increases to achieve the 2% inflation target. However, he emphasized that the outcome remains uncertain.
The Federal Reserve Governor is closely monitoring various economic indicators including the rise in long-term interest rates, consumer spending behavior, investment trends in non-residential structures, labor market status, and inflation in housing and core services excluding housing. He is also considering inflation expectations and overall economic evolution as part of his policy rate adjustment decisions.
Waller also highlighted the significant tightening of financial conditions since July, as indicated by a nearly 90 basis point increase in the yield of the 10-year Treasury note. This rise could potentially impact consumer spending. Despite these tightened conditions, he acknowledged the surprising resilience of consumer spending.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.