Fed's Waller: Interest Rate Hike Could Happen If Inflation Gets Out of Control
Federal Reserve Governor Christopher Waller emphasized that the next interest rate move could be either an increase or a decrease, given the surge in energy prices caused by the US-Iran war.
In a speech in Frankfurt titled "Policy Risks Have Changed" on Friday (May 22), Waller said his current stance is to hold interest rates until the impact of the conflict is clearer, but he did not rule out a rate hike if inflation does not slow. "Inflation is not moving in the right direction. I support removing the language of 'easing bias' to make it clear that a rate cut is no more likely than a future increase," Waller said.
At its April meeting, the FOMC maintained its benchmark interest rate at 3.5%–3.75%, although three policymakers opposed language that implied a future decrease. Stronger-than-expected jobs data and rising inflation confirmed that price pressures outweigh the risk of a growth slowdown due to the conflict.
The latest survey also showed that US consumer sentiment fell to an all-time low in May, with five- to ten-year inflation expectations rising to 3.9% annually, and one-year annual inflation projected at 4.8%. Waller assessed that the labor market is stable, but current interest rates are already having a restrictive effect on the economy.
"If inflation expectations start to spiral out of control, I would not hesitate to support an increase in the federal funds rate. At this point, such action is premature; it's time to wait for developments in the conflict and further data," Waller added.
This statement was made ahead of Kevin Warsh's inauguration as the new Fed Chair in the White House.
The main variables being monitored are inflation developments, the impact of the US-Iran war on energy, and the Fed's interest rate policy stance. (Arl)
Source: Newsmaker.id
