MNI: Fed’s Waller Sees Another 75BP Hike In July

The Federal Reserve will probably need to raise interest rates by another unusually aggressive 75 basis points in July as inflation is likely to stay elevated, Fed Governor Christopher Waller said on Saturday.

“In my view, and I speak only for myself, if the data comes in as I expect I will support a similar-sized move at our July meeting,” Waller said in prepared remarks for delivery at a conference in Dallas. “The Fed is ‘all in’ on re-establishing price stability.”

The Fed raised interest by 75 bps for the first time since 1994 this week, pushing the federal funds rate target to a range of 1.5% to 1.75%. It also revised up its 2022 PCE inflation forecast to 5.2% from 4.3%. Fed Chair Powell indicated he saw either a 50 bp or 75 bp move at the July meeting.

One factor keeping inflation high in coming months could be housing, MNI reported this week. (See: MNI INTERVIEW: US Shelter CPI Rising to 7% By April -CoreLogic)

LOOKING BACK

Most of Waller’s speech was a backward looking reflection on why the Fed seems to have found itself fighting inflation from behind as May CPI surged to another 40-year high of 8.6%.

He argued the Fed’s criteria for reducing asset purchases and eventually raising interest rates was too restrictive.

“My takeaway is that a less restrictive tapering criteria would have allowed more flexibility to taper sooner,” Waller said. The criteria for rate hikes was “also quite restrictive. The liftoff criteria required the economy to be in a situation where our dual mandate had been achieved.”