MNI: Fed’s Waller Says Too Soon To Call For June Pause

A lack of progress bringing down inflation means it’s too soon for Federal Reserve officials to stop raising interest rates, Governor Christopher Waller said Wednesday, although tighter credit conditions could alter that calculus.

“I do not expect the data coming in over the next couple of months will make it clear that we have reached the terminal rate. And I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective,” Waller said in prepared remarks titled "Hike, Skip, or Pause?"

The latest CPI figures showed “almost no progress,” because the decline in headline inflation to 4.9% was “only due to rounding,” Waller said.

“Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks. Based solely on the data we have in hand as of today, we are not making much progress on inflation,” he said.

Waller's tone diverged from Fed Chair Jerome Powell’s comments last week that financial stresses meant the central bank might not have to raise rates as much, which markets took as a signal the Fed chief favors a June pause.

JULY HIKE?

Waller said recent banking turmoil posed the risk of credit tightening but did not seem to place much weight on the possibility that this would be enough to rein in inflation.

“If banking conditions do not appear to have tightened excessively, then hiking in July could well be the appropriate policy,” he said.

He pointed to some signs that the labor market may be cooling but said conditions are still too hot.

“A loosening labor market, to help our fight against inflation, doesn’t have to mean a recession or big job losses. But we do need to see more loosening than we have seen to help take the heat off the inflation rate,” he said.

“Though some measures of wage increases have begun to slow, I am concerned that inflation won’t be coming down very much unless average hourly earnings decelerate from the most recent level of 4.4% to a pace a lot closer to 3%.”

The Fed hiked interest rates sharply starting in March of last year, from effectively zero to a range of 5%-5.25%.