MNI: Waller- Fed Must Keep Fighting Inflation “Aggressively”

High and persistent inflation means there’s little reason for the Federal Reserve to ease up on its aggressive fight to bring price pressures under control and keep inflation expectations from becoming untethered, Federal Reserve Governor Christopher Waller said Friday.

“Based on all of the data that we have received since the FOMC’s last meeting, I believe the policy decision at our next meeting will be straightforward,” he said, without specifying his preferred size of a rate move, which markets are now betting will likely repeat the 75-basis point moves seen in June and July.

“I support a significant increase at our next meeting on September 20 and 21 to get the policy rate to a setting that is clearly restricting demand," he said.

A strong labor market means there is no trade off between the Fed’s dual mandate objectives of full employment and price stability, allowing policymakers to focus their attention on the latter, he said. Inflation is broad-based and fueled by strong demand, lagging labor force participation and supply chain issues that remain a challenge, said Waller.

DATA DEPENDENCE

“For these reasons, I expect it will take some time before inflation moves back to our 2% goal, and that the FOMC will be tightening policy into 2023,” he said. “But the answers to questions of ‘how high?’ and ‘for how long?’ will depend solely on incoming data.”

Cleveland Fed President Loretta Mester told MNI in a webcast this week that it’s too soon to say whether inflation has peaked, adding she would like to raise the fed funds rate to above 4% before pausing to reassess.

Waller seemed to agree. “While I welcome promising news about inflation, I don’t yet see convincing evidence that it is moving meaningfully and persistently down along a trajectory to reach our 2% target,” he said.

”I keep in mind that a year ago we saw similarly promising evidence of inflation moderating for several months before it jumped up to a high and then very high level.”

Waller said he takes comfort in a decline in inflation expectations both in consumer surveys and market measures.

“To me, this means that the public retains confidence that the Fed will be able to rein in inflation in the medium term," he said in prepared remarks at an event in Vienna, Austria.