Fed's Waller: 'I don't support stopping rate hikes' until inflation cools

Federal Reserve Governor Christopher Waller said Thursday he doesn’t think the Fed should stop raising interest rates until there is clear evidence inflation is cooling.

“I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective,” Waller said at an economic summit in Santa Barbara, California.

“Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks.”

The Fed’s policy rate stands in a range of 5%-5.25%, a peak projected by officials back in March. Officials are expected to release new interest rate projections at their meeting in June.

It’s unlikely the Fed will be able to determine whether it has reached the peak on the benchmark policy rate based on data over the next few months alone, Waller said Thursday.

“I do not expect the data coming in over the next couple of months will make it clear that we have reached the terminal rate,” said Waller.

What's more, the data since the Fed’s last policy meeting hasn’t yet offered enough clarity on what to do with interest rates at the next meeting, Waller said.

He noted that he’ll be watching two more readings on inflation and another jobs report as well as how credit conditions evolve in the wake of the string of bank failures this spring.

Waller teased out different scenarios for June. If the belief is data isn’t going to get much better, Waller said, then a 25-basis point increase is appropriate.

But another hike combined with any abrupt and unexpected tightening of credit conditions could push the economy down rapidly, he added.

“If banking conditions do not appear to have tightened excessively, then hiking in July could well be the appropriate policy,” he said.

Waller says he’s concerned there’s been little progress on lowering inflation, pointing to a few layers within readings on prices.

First, he says core goods prices, which were among the biggest factors that drove the escalation in inflation the past two years, aren’t slowing or retreating as much as he thinks is needed to get inflation down.

He’s also concerned that a recent rebound in home prices could counteract lower rents that economists have expected to bring down the consumer price index reading on inflation.

He also says he thinks inflation won’t come down very much unless average hourly earnings growth slows down from a level of 4.4% in April to a pace closer to 3%.

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