Federal Reserve Governor Christopher Waller said Thursday that the central bank would likely need to raise interest rates twice more this year to keep inflation moving down.
“I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target,” Waller said in remarks prepared for a dinner event hosted by the Money Marketeers of New York University. The remarks were posted to the Fed’s website Thursday night.
Waller challenged the notion that the Fed’s past hikes have not yet hit the economy. Although monetary policy is often thought to act on the economy with “long and variable lags,” Waller argued that “big shocks travel fast.” That is, the size and pace of the Fed’s hikes last year likely accelerated their effect on the economy. What’s more, because Fed officials made clear their intention to keep hiking until inflation was under control, the policy began to effect interest rates even before the Fed enacted its first post-pandemic rate increase last year.
“Pausing rate hikes now, because you are waiting for long and variable lags to arrive, may leave you standing on the platform waiting for a train that has already left the station,” Waller said.
Waller said that based on just the economic data, he would have supported a hike at the last meeting. But the possibility of stress in the banking sector after the collapse of Silicon Valley Bank convinced him that waiting for an additional six weeks was prudent.
Christopher Waller, governor of the US Federal Reserve, during a Fed Listens event in Washington, D.C., US, on Friday, Sept. 23, 2022. Federal Reserve officials this week gave their clearest signal yet that they’re willing to tolerate a recession as the necessary trade-off for regaining control of inflation. Photographer: Al Drago/Bloomberg via Getty Images
“Since the June meeting, with another month of data to evaluate lending conditions, I am more confident that the banking turmoil is not going to result in a significant problem for the economy, and I see no reason why the first of those two hikes should not occur at our meeting later this month,” Waller said.
Waller also added that the Fed would need to “keep policy restrictive for some time in order to have inflation settle down around our 2 percent target.”
While the market currently has priced in a near certainty that the Fed will hike at its July meeting, there is far more skepticism that the Fed will hike after that.
“If inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity, then a second 25-basis-point hike should come sooner rather than later, but that decision is for the future,” Waller said.