MNI BRIEF: Waller-Tighter Markets Doing Some Of Fed’s Work

The rise in long-term yields is tightening financial conditions in much the same way as Federal Reserve interest rate increases do, Fed Governor Christopher Waller said Wednesday.

“Financial markets are tightening up and they’re going to do some of the work for us,” he said during a Q&A, adding that policymakers would need to watch those movements to see how they would interact with monetary policy.

Waller, one of the more hawkish voices on the FOMC, sounded sanguine on the inflation outlook. “We’re finally getting very good inflation data. If this continues we’re pretty much back to our target. We’re seeing wages softening. That portends well for service sector firms." (See MNI POLICY: Softer Trend Inflation Boosts Case For Fed Pause)

At the same time, the economy is still growing very quickly in a way that should keep officials on watch, said Waller, adding that Q3 GDP growth could exceed 4%.