Federal Reserve Governor Christopher Waller expressed increasing confidence that current policy measures are effectively positioned to bring inflation back under control. In a speech delivered in Washington, D.C., Waller noted that while inflation remains too high at present, there is evidence of early signs of moderation in economic activity during the fourth quarter. This suggests that the Fed may not need to raise interest rates further from the current levels.
Waller’s prepared remarks did not indicate any intentions of reducing interest rates. He acknowledged that inflation continues to be elevated and that it is too early to determine whether the observed economic slowdown will be sustained. However, he expressed his growing conviction that the current policy stance is well-suited to temper economic growth and guide inflation back toward the Fed’s 2 percent target.
He mentioned that if inflation continues to ease over the next three to five months, there may come a point where the Fed considers lowering interest rates. He clarified that such a move would not be an attempt to stimulate the economy but would align with established policy rules. Waller emphasized that there is no reason to maintain excessively high inflation levels.
Governor Michelle Bowman delivered a contrasting perspective in a subsequent speech, reiterating her belief that further interest rate hikes may be necessary due to ongoing dynamics keeping inflation elevated.
These comments come ahead of the Federal Open Market Committee’s (FOMC) upcoming policy meeting on December 12-13. While market expectations lean towards the FOMC maintaining the current target range for the key lending rate at 5.25%-5.5%, Fed officials have stressed the importance of vigilance regarding inflation and keeping policy options open.
Christopher Waller has generally held a more hawkish stance within the Fed, advocating for tighter monetary policy and higher interest rates. Nevertheless, his recent speech titled “Something Appears to Be Giving” contrasts with a previous speech titled “Something’s Got to Give.”
Waller cited several areas where economic activity is showing signs of moderation, including retail sales, the labor market, and manufacturing. He also pointed out a reduction in supply chain pressures, which were primarily responsible for the initial surge in inflation. However, Waller cautioned that relying on supply chain relief alone would not be sufficient to bring inflation down.
He concluded by stating that monetary policy will need to play a significant role in further efforts to lower inflation to the Fed’s target of 2 percent.