MNI: Fed Well Positioned, Can’t Say For Sure If Done-Waller

The Federal Reserve has made significant progress in its fight against inflation as the economy’s blockbuster growth appears to moderate, though it’s still too soon to say whether policymakers have done enough, Fed Governor Chris Waller said Tuesday.

“I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%,” Waller said in prepared remarks to the American Enterprise Institute.

“That said, there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability.”

Waller’s positive tone on growth and inflation is notable for an official seen as one of the more hawkish members of the FOMC. (See: MNI POLICY: Fed Likely Done Hiking, Focused On Length Of Hold)

“I am encouraged by what we have learned in the past few weeks — something appears to be giving, and it’s the pace of the economy,” he said. “After watching core PCE inflation increase in September from its summer lows, the latest data showed inflation moving in the right direction in October, albeit gradually.”

He said there are reasons to hope that the decline in inflation will persist, including an expected decline in the contribution of home values to price pressures, as well as lower wage growth.

FINANCIAL CONDITIONS

Still, Waller argued such improvements cannot be taken for granted, adding that policymakers should not count on volatile developments in financial markets in determining the course of monetary policy. "Before the next FOMC meeting we will get data on PCE inflation and job openings, and a job report and supply manager’s survey for November."

“The recent loosening of financial conditions is a reminder that many factors can affect these conditions and that policymakers must be careful about relying on such tightening to do our job,” he said, referring to this month’s reversal of ten-year Treasury yields after a big spike beginning in August.

Waller said the supply-side problems that plagued the economy post-pandemic -- and became a huge driver of inflation -- were largely resolved, meaning that the remaining effort in getting inflation all the way back to target lies squarely on the central bank. (See: MNI INTERVIEW: Fed Focus On Service Prices In Tough Last Mile)

"Monetary policy will have to do the work from here on out to get inflation back down to 2%," Waller said.