Federal Reserve Governor Christopher Waller indicated on Thursday that further interest rate increases are likely necessary to bring inflation down to the central bank's 2% target. However, he suggested there is flexibility regarding the timing and pace of these hikes, leaving open the possibility of pausing at the upcoming October meeting.
The comments from Federal Reserve Governor Waller suggest a potential pause in interest rate hikes at the upcoming October meeting, offering some relief to markets concerned about aggressive tightening. However, the continued indication of future hikes signals that borrowing costs are likely to remain elevated for some time, impacting corporate investment and consumer spending.
Federal Reserve Governor Christopher Waller stated on Thursday that more interest rate increases will likely be necessary to bring inflation down to the central bank's 2% target. However, he also noted there is "flexibility" regarding the pace of these hikes, suggesting they do not need to occur at consecutive meetings and leaving open the possibility of a pause at the upcoming October policy meeting.
Waller's remarks, prepared for a Central Bank of Turkey forum, align with recent comments from other Fed officials who anticipate holding the policy rate steady at the current 3.75% to 4% range when they meet on October 27-28. A further quarter-percentage-point hike is expected in December, contingent on incoming economic data showing continued low unemployment, ongoing growth, and limited progress in lowering inflation.
Investors are currently pricing in a steady rate at the October meeting, with a hike anticipated about six weeks later in December. Waller did not specify how much further the policy rate might need to rise, but cited the strengthening economy, unresolved energy price shocks from the Iran war, and concerns that AI buildout could be adding to inflation through increased demand as reasons for higher rates.
He expressed less concern that tighter monetary policy would threaten a damaging economic slowdown, but voiced worry that recent inflation acceleration could lead to upward revisions in inflation expectations by consumers, investors, and businesses. Waller's comments are among recent indications from top Fed officials of a willingness to pause rate increases while acknowledging the potential need for further borrowing cost boosts.
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