MNI: Fed Must Do More, Tighten Financial Conditions-Waller

Federal Reserve Governor Chris Waller said Wednesday the central bank has "farther to go" and he is preparing for a longer fight to bring inflation down to its 2%, and part of that process will be to tighten financial conditions.

"Our intention is to tighten financial conditions, including raising the cost of credit, to dampen demand and spending to further reduce inflation," he said.

"Some believe that inflation will come down quite quickly this year. That would be a welcome outcome. But I’m not seeing signals of this quick decline in the economic data, and I am prepared for a longer fight to get inflation down to our target."

The big picture, he said, is that the U.S. economy is adjusting well so far to the higher interest rates that are necessary to rein in inflation. "But inflation remains quite elevated, and so more needs to be done."

STRONG LABOR MARKET

Waller added that continued upward pressure on inflation comes, in part, from a very tight labor market.

Pointing to the last JOLTS report showing demand for workers remains robust and January's employment report showing the economy created a whopping 517,000 jobs, Waller said such employment gains mean labor income will be strong and buoy consumer spending, which could maintain upward pressure on inflation in the months ahead.

"We have seen some moderation in compensation growth in recent months but not enough," he said in a speech at an agribusiness conference at Arkansas State University. (See: MNI INTERVIEW: Fed Model Suggests Wage Growth Normalizing Soon)

"Although economic activity slowed in 2022, I expect the Fed will need to keep a tight stance of monetary policy for some time to slow activity further in 2023."