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Fed's Waller wants 'several more months' of data before policy shift debate

EconomyMay 13, 2021 02:31PM ET
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By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) -The Federal Reserve needs "several more months of data" to ensure recent weak job growth and high inflation are temporary before considering changes to its ultra-easy monetary policy, Fed Governor Christopher Waller said on Thursday.

Waller said a "ready-to-rip" economy will eventually work through what he regards as a temporary mismatch between companies' booming demand for workers and the willingness of people on the sidelines of the labor market to take jobs while the coronavirus pandemic is continuing and unemployment benefits are available to pay the bills.

A higher-than-expected 4.2% jump in consumer prices in the 12 months through April, meanwhile, will prove temporary as supply bottlenecks ease, and consumers spend down a surplus of savings accumulated from the flow of government aid during the pandemic, Waller said at a Global Interdependence Center forum.

"The U.S. economy is hitting the gas and continuing to make a very strong recovery," Waller said.

Despite the economic recovery, the country only added 266,000 jobs last month, about a quarter of the gain expected by economists in a Reuters poll.

The April inflation and job results were a surprise that led to "the jaw of every forecaster hitting the floor," Waller said, and confirmed the need for the U.S. central bank to tie policy changes to outcomes, rather than forecasts that might be off base, particularly coming out of a pandemic.

Waller said he expects inflation to be above the Fed's 2% target, likely between 2.25% and 2.5%, for the next two years. He said that outcome would be in line with the central bank's effort to allow a period of higher inflation to make up for recent years in which the pace of price increases has lagged.

But there is a limit.

In Waller's case, he said he would get "very concerned" if inflation came in at 4% inflation month after month.

In terms of the labor market, the Fed has said it would not alter its $120 billion in monthly bond purchases until there has been "substantial further progress" in putting people back to work, with an increase in the current near-zero benchmark overnight interest rate even further down the road.

The May and June nonfarm payrolls reports "may reveal that April was an outlier, but we need to see that first before we start thinking about adjusting our policy stance," Waller said. "Now is the time we need to be patient, steely-eyed central bankers, and not be head-faked by temporary data surprises."

Fed's Waller wants 'several more months' of data before policy shift debate

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Vik Raj
Vik Raj May 13, 2021 1:23PM ET
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that made sense
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