MNI: Fed's Waller Backs At Least 75BP After ‘Major League’ CPI

The Federal Reserve probably needs to raise interest rates another 75 basis points at this month's meeting, Governor Christopher Waller said Thursday, but he could support a larger hike if demand doesn't show signs of slowing.

"We have important data releases on retail sales and housing coming in before the July meeting. If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down," he said in prepared remarks.

Calling the June CPI report showing inflation surged to 9.1% over the year a "major league disappointment," Waller said he supports another 75-basis point increase at the July 26-27 FOMC meeting, bringing the fed funds rate to 2.25% - 2.5%.

"I judge that level is close to neutral," he said. "I think that estimates of the real federal funds rate should be based on the expected policy rate one to one and a half years in the future."

Emphasizing data dependency for July and beyond, the Fed governor said until he sees a significant moderation in core prices, he supports further rate hikes. "We must be focused on reducing inflation because, despite a lot of talk about recession lately, the evidence from the labor market indicates the economy is on track, while inflation continues to be far too high."

Past experience has shown that job creation and the unemployment rate are timely indicators of a recession, more timely than quarterly GDP, he said. "Evident strength across different measures of the labor market, leave me feeling fairly confident that the U.S. economy did not enter a recession in the first half of 2022 and that the economic expansion will continue," he said in a speech at a Global Interdependence Center event.