Top Fed official calls for two more rate hikes

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A top US central bank official said on Thursday that the Federal Reserve would need to implement two more quarter-point rate hikes this year to bring inflation under control.

In an intervention that pushed back against market pricing suggesting the Fed would end its monetary tightening after only one more hike, Christopher Waller this month and backed another hike before the end of 2023.

Waller, a governor who is one of the most hawkish members of the central bank’s rate-setting committee, said he could push for a second hike in September or later this year, depending on incoming economic data.

“If inflation does not continue to progress and there is no sign of a significant slowdown in economic activity, a second 25-basis-point hike should come soon, but this decision is for the foreseeable future,” he said. The program was organized by New York University.

His remarks will be one of the last public comments by a Fed official before a “blackout” period ahead of the next two-day policy meeting starting July 25.

After pausing interest rate hikes in June, the central bank is expected to resume its aggressive monetary tightening campaign later this month, raising the benchmark rate to a new target range of 5.25-5.5 per cent.

Waller said an interest rate hike in June would be appropriate, but skipping an increase at a time of uncertainty over the Fed’s current tightening and the extent of the credit crunch triggered by the regional banking crisis earlier this year reflected “prudent risk management.”

He was speaking after better-than-expected economic data suggested that the most stubborn price pressures are starting to ease more clearly.

The latest Consumer Price Index report released on Wednesday indicated that “core” inflation, which removes volatile food and energy prices, rose at a slower pace than expected, a trend that many economists believe That will continue in the coming months. Waller said on Thursday the data was “welcome news, but one data point doesn’t make a trend”.

He added: “I need to see this recovery sustain before I can be sure that inflation has come down.”

Wall Street economists and traders are mostly betting that the rate hike at the end of the month will be the last of the cycle.

However, Waller rejected the view, proposed by many of his colleagues, that the net effect of the Fed’s tightening so far has not yet been fully felt on the economy.

In an interview with the Financial Times this week, New York Fed President John Williams said: “We are not yet getting the full impact of the restrictive policy that we have put in place.”

But Waller said that “much of last year’s austerity has already taken its toll on the economy”.

“To me, this means that the policy tightening we have done this year is appropriate and more policy tightening will be needed to bring inflation back to our 2 percent target,” he said.

Waller lost a key offensive ally on Thursday after James Bullard said he would resign from his position as president of the St. Louis Federal Reserve Bank to join Purdue University’s business school as its inaugural dean. Gave.

Bullard, who has been at the Fed for 33 years, has established himself as an advocate for the US central bank, which has acted aggressively to quell one of the most serious inflation problems it has faced in decades. .

He was one of the first to urge the Fed to scale back its ultra-loose monetary policy after the pandemic and was a vocal supporter of the central bank’s big interest rate hike last year.

As a voting member on the Federal Open Market Committee last year, Bullard has periodically disagreed on various policy decisions, most recently in March 2022, when he argued that the US central bank should set rates by quarter-points instead of should be raised to the half-point. settled on.

He has recused himself from any monetary policy matters until his departure, including the meeting at the end of the month.

Kathleen O’Neill Pesce, who served as first vice president of the St. Louis Fed, will step in as interim president.