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Fed's Waller Contemplates Pause in Rate Hikes Amid Inflation Concerns

Federal Reserve Governor Christopher Waller expressed concerns about ongoing inflation and the potential necessity to continue or pause rate hikes depending on upcoming economic data.

Christopher Waller
Christopher Waller

On Wednesday, Christopher Waller, Federal Reserve Governor, expressed his concern about insufficient progress in managing inflation. He mentioned that it might be possible to defer the interest rate hike planned for the U.S. central bank's meeting next month but signaled that a cessation of the rate hiking is improbable.F

Waller stated, "Unless we get clear evidence that inflation is moving down towards our 2% objective, I do not support stopping rate hikes." He further noted that the decision to raise or hold the rate at the June meeting would be data-dependent.

Anticipated Data Critical to Inform Next Steps

Waller highlighted that the upcoming readings on inflation and data on the "very tight" labor market would be critical. He mentioned that wage rises outpacing stable pricing could be an issue. Additionally, evolving credit conditions since the recent regional bank failures starting in March would influence his perspective.

"Between now and then, we need to maintain flexibility on the best decision to take in June," Waller added.

Hike Pause in June May Pave the Way for July Action

According to Waller, even if deferring a rate hike in the June 13-14 meeting proves justified, "prudent risk management would suggest skipping a hike at the June meeting but leaning toward hiking in July based on the incoming inflation data."

Christopher Waller
Christopher Waller

Previously, the Fed raised the target for its policy rate to the 5.00%-5.25% range. Fed Chair Jerome Powell hinted that this level might be sufficient for central bankers to halt their tightening campaign and evaluate its impact on the economy, given the uncertain credit conditions outlook.

Waller's Hawkish Stance on Inflation

Waller's rather hawkish views on inflation, advocating for more decisive actions, were instrumental in the U.S. central bank's robust interest rate hikes last year. He argued that the core consumer inflation rate of 5.5% was "too high," the labor market needed to loosen, given a 3.4% unemployment rate and hourly wage growth of 4.4%, to ease price pressures.

While Waller acknowledged the possibility of skipping an 11th consecutive rate hike next month, he also signaled that the Fed's actions might not be over yet. By July, clearer credit conditions could dictate that "hiking in July could well be the appropriate policy," should banking conditions not tighten excessively.