The Federal Reserve’s job isn’t finished and more interest rate hikes are likely on the horizon, a top official from the central bank said on Wednesday.
Governor Christopher Waller cited the continued strength of the U.S. economy and still rampant nature of inflation as reasons to continue raising rates. Waller made the comments at an economic summit taking place in Santa Barbara, Calif.
The decision as to whether to raise rates in June or delay the next hike until the Fed’s July meeting remains up in the air, Waller said, adding that officials will ultimately decide what to do after seeing the latest jobs and inflation data for April and May.
“We need to maintain flexibility on the best decision to take in June,” Waller said. “I don’t expect the data coming in over the next couple of months will make it clear that we have reached the terminal rate.”
Waller, who is known for more hawkish policy views, said he won’t support a pause until there’s clear evidence that inflation is moving down to the Fed’s 2% target. Economists surveyed by FactSet expect April’s core PCE inflation report, due out Friday morning, to show prices climbed 4.6% year over year.
Waller’s remarks come amid intensifying debate over whether the Fed’s policy-making arm should raise interest rates for an 11th consecutive time when it next meets on June 13-14. Some Fed officials have made clear they believe the economic data doesn’t suggest it would be appropriate for the central bank to pause its tightening campaign, while others have said the uncertain nature of the current moment and the lag with which monetary policy operates means it would be more appropriate to hold rates steady for now.
The Wednesday speech, which was titled “Hike, Skip, or Pause?”, centered on Waller’s view that the committee so far has made little progress in its quest to bring down inflation. Goods prices, for one, aren’t declining the way the committee would like to see. Services prices are being propped up by strong wages, which he says may need to cool from the current level of 4.4% to a level “a lot closer to 3%” in order for price growth to slow.
And rent prices, which are one of the largest components of core inflation, are slowing, Waller says—but it remains unclear how long price relief in that category might last given the recent rebound in the housing market.
That lack of progress on inflation overall explains why Waller says he believes the final federal-funds rate is higher than the current level of 5-5.25%. But the Fed governor also acknowledged the current state of “higher-than-usual uncertainty about how credit conditions are evolving” in the aftermath of a series of bank failures in recent months.
That uncertainty, he says, could delay the next rate hike from June to July to allow more time for officials to watch how credit conditions evolve.
Write to Megan Cassella at [email protected]
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