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Fed Governor Waller backs quarter-point rate of interest hike at next meeting

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Federal Reserve Governor Christopher Waller said Friday he favors 1 / 4 percentage point rate of interest increase at the subsequent meeting, as he waits for more evidence that inflation is heading in the correct direction.

Confirming market expectations, the central bank official said during a Council on Foreign Relations event in Recent York that the Fed can dial down on the dimensions of its rate hikes.

But he also said it isn’t time to declare victory on inflation, comparing monetary policy to an airplane that soared higher quickly and now’s ready for a gradual descent.

“And in line with this logic and based on the information in hand at this moment, there appears to be little turbulence ahead, so I currently favor a 25-basis point increase on the FOMC’s next meeting at the tip of this month,” Waller said in prepared remarks. “Beyond that, we still have a substantial approach to go toward our 2 percent inflation goal, and I expect to support continued tightening of monetary policy.”

He didn’t specify how high he sees rates heading, and was scheduled to take part in a question-and-answer session following the 1 p.m. ET speech.

Christopher Waller, U.S. President Donald Trump’s nominee for governor of the Federal Reserve, listens during a Senate Banking Committee confirmation hearing in Washington, D.C., on Thursday, Feb. 13, 2020.

Andrew Harrer | Bloomberg | Getty Images

Other officials, corresponding to Philadelphia Fed President Patrick Harker, have pointed to a 0.25 percentage point increase on the Jan. 31-Feb. 1 FOMC meeting, but Waller is the highest-ranking member to be that explicit.

While the market and the Fed seem like on the identical page with where rates go within the short term, there may be divergence further out.

Central bankers largely have said they see rates holding at a high level through the tip of the yr, while markets see a peak in the summertime then a discount shortly thereafter.

Waller said the divergence is essentially about perception for where inflation goes to go.

“The market has a a really optimistic view that inflation is just going to melt away. The stainless disinflation goes to occur,” he told CNBC’s Steve Liesman during a question-and-answer session after the speech. “We now have a distinct view. Inflation’s not only going to miraculously melt away. It’ll be a slower, harder slog to get inflation down and subsequently we’ve got to maintain rates higher for longer and never start cutting rates by the tip of the yr.”

Waller was generally upbeat on the economy, noting that activity has slowed in some key areas corresponding to manufacturing, wage growth and consumer spending. He emphasized the Fed’s goal is just not to “halt economic activity,” but slightly to bring it back into balance so inflation can begin to fall.

In recent months, inflation gauges corresponding to the buyer price index and the Fed’s preferred core personal consumption expenditures price index have come off their peaks of last summer. But he noted that while headline CPI declined 0.1%, the index excluding food and energy still rose 0.3% and “remains to be too near where it was a yr ago.”

“So, while it is feasible to take a month or three months of knowledge and paint a rosy picture, I caution against doing so,” he said. “The shorter the trend, the larger the grain of salt when swallowing a story concerning the future.”

But Waller did say he still sees a “soft landing” as possible for the economy, scenario that may see “progress on inflation without seriously damaging the labor market.”

“Up to now, we’ve got managed to achieve this, and I remain optimistic that this progress can proceed,” he said.

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