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Fed's Waller backs another big rate hike for 'all in' inflation fight

Economy Jun 19, 2022 09:05AM ET
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© Reuters. The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger

By Ann Saphir

(Reuters) -Federal Reserve Governor Christopher Waller on Saturday became the latest U.S. central banker to pledge a whatever-it-takes approach to fighting inflation, three days after the Fed raised interest rates by three-quarters of a percentage point and signaled more hikes to come.

"If the data comes in as I expect, I will support a similar-sized move at our July meeting," Waller told a Society for Computational Economics conference in Dallas. "The Fed is 'all in' on re-establishing price stability."

A surge in inflation, which is at its highest level in 40 years, has made hawks of nearly all Fed policymakers, only one of whom dissented earlier this week against what was the central bank's biggest rate increase in more than a quarter of a century.

Policymakers currently expect to raise the Fed's benchmark overnight interest rate, now in a range of 1.50%-1.75%, to at least 3.4% in the next six months. A year ago, the majority thought the rate would need to stay near zero until 2023.

On Friday, the Fed called its fight against inflation "unconditional," and Atlanta Fed President Raphael Bostic, who had been its most dovish policymaker, declared "we'll do whatever it takes" to bring inflation back down to the central bank's 2% target.

Inflation, as measured by the Personal Consumption Expenditures Price Index, is running at more than three times that level.

"That's the most important thing I'm worried about," Waller said on Saturday, adding that moving rates quickly up to the neutral level and into restrictive territory is necessary to slow demand and put a check on inflation.

That monetary tightening will likely drive unemployment, now at 3.6%, to between 4% and 4.25%, or possibly higher, Waller said, "but my goal is just to slow the economy." Rising worries that Fed rate hikes will cause a recession, he said, "are a bit overblown."

Waller also said there are limits to how fast the Fed can move: markets would have a "heart attack" if the central bank raised rates by a full percentage point in a single move.

RISK OF OVERSHOOT

Speaking at the same event in Dallas, former Fed Vice Chair Donald Kohn blamed high inflation in part on a decision to delay the tightening of policy that he traced to a framework the U.S. central bank adopted in 2020. That framework ruled out raising rates to preempt inflation triggered by falling unemployment.

Waller, however, argued that it was the Fed's overly specific promises about when it would end its massive asset purchases, implemented in 2020 to shelter the economy from pandemic-related fallout, that were at fault.

Structural changes to the economy mean there is a "decent chance" the Fed will in the future need to again slash its policy rate to zero and buy bonds to fight even a typical recession, he said.

Waller said, next time, he would support less restrictive promises around the end of bond purchases and more clarity around not just when the Fed would start to tighten policy but also how fast. If the Fed says it will not start raising rates until the labor market is at full employment, as it did in the recent cycle, markets should be primed to understand that borrowing costs will be pushed up very quickly once rates start to rise.

Kohn, for his part, urged some caution once rates are high enough to start slowing inflation, warning that the Fed risks overshooting on its goals.

"It requires judgment and confidence to know when to back off," Kohn said.

Fed's Waller backs another big rate hike for 'all in' inflation fight
 

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Comments (14)
Steve Pate
Steve Pate Jun 19, 2022 3:06PM ET
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People keep forgetting that QT just started and don't understand the negative effects it will have.
Nils Hullmann
Nils Hullmann Jun 19, 2022 3:04PM ET
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they cant raise the rates without breaking the market so they try to "talk" it down
Steve Bojo
Steve Bojo Jun 19, 2022 1:11PM ET
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This is just the excuse they’ll use to convince a majority to embrace digital currency. For freedom and privacy sake we must not allow digital currency to come to fruition.
Steve Bojo
Steve Bojo Jun 19, 2022 1:04PM ET
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You cant tap down 8% (it could be argued that its 15%) inflation with an interest rate of .75% hike.
niki velev
niki velev Jun 19, 2022 11:56AM ET
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we will see another red week on the chart
Atlantic Coast Money
Atlantic Coast Money Jun 19, 2022 10:35AM ET
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ABOLISH THE FED! Problem solved.
James Johannsen
James Johannsen Jun 19, 2022 10:35AM ET
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put in the Irs, cia and other alphabet soups
Alpha Omega
Alpha Omega Jun 19, 2022 9:39AM ET
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Biden...Biden...Obiden...Obiden...All the same person. As long as Obiden is president America is not going back....Forget about it!🦉
Jan Buyle
Jan Buyle Jun 19, 2022 9:13AM ET
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Stagflation seems inevitable...
Matt Goodwin
Matt Goodwin Jun 18, 2022 8:16PM ET
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Wallers probably in bed with Duesch bank trying crash the markets and take up a nice new buy position when everyone and everything falls for it.
Alpha Omega
Alpha Omega Jun 18, 2022 8:16PM ET
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Probably YES !
Sol Wein
Sol Wein Jun 18, 2022 8:11PM ET
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Waller, have you considered the gov budget deficit and how higher rates will impact servicing the debt?
Steve Bojo
Steve Bojo Jun 18, 2022 8:11PM ET
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Pain needs to happen in order to regain some fiscal discipline
 
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