Fed Governor Waller says a full rate hike is possible, but not yet

Christopher Waller, governor of the Federal Reserve, said he supported raising the central bank’s policy rate in July by the same amount as in June, though he suggested an even larger move might be warranted if economic data keeps coming in.

The Fed raised interest rates by 0.75 percentage point last month, their biggest increase since 1994, in an effort to rapidly cut lending and spending and cool an economy that is experiencing the fastest inflation in four decades. Investors had expected a similar move at the central bank’s July 26-27 meeting, but then a new inflation report this week came in unexpectedly high.

Now, the likelihood of traders making an even bigger move, a full percentage point, which would be the biggest increase since the 1980s, has increased. But Mr. Waller suggested that he was not yet ready to speak out in favor of such a big move.

Mr. Waller said in a prepared speech that “with the CPI data in hand, I support another 75 basis point hike.”

Such a move would raise interest rates to what the Fed considers a neutral environment: the point where they are no longer helping the economy and would start to tighten it if rates were to rise.

But Mr. Waller added that “we have major data releases on retail and home sales ahead of the July meeting,” suggesting he could still support an even bigger move depending on how conditions evolve.

“If that data comes in materially stronger than expected, I would lean toward a larger increase at the July meeting,” he said, “to the extent that it shows demand isn’t slowing fast enough for inflation to come down. ”.

Several officials, including Loretta Mester, president of the Federal Reserve Bank of Cleveland, and Mary C Daly, president of the Federal Reserve Bank of San Francisco, have refused to support such a big move now, but have not ruled it out definitively. Instead, they have based the possibility of a bigger move on incoming data, particularly retail sales and a survey of consumer inflation expectations due out on Friday.

The Fed is on alert as inflation accelerates and becomes more widespread, beyond the time many expected it to moderate.

The Consumer Price Index rebounded 9.1 percent in the year to June, more than the 8.8 percent economists had expected. That was fueled in large part by a rise in gasoline prices that has since cooled off, but underlying details in the report suggested rent, food and a variety of services are also getting more expensive, a sign of that inflation is getting tighter, which is worrying news for central bankers.

The report “was a major league disappointment,” Waller said.

“Inflation must be our focus, at every meeting and every day, because the spending and pricing decisions that people and businesses make every day depend on their expectations of future inflation, which in turn depend on whether they believe the Fed is committed enough to its inflation. target,” he said.

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