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Waller With Some Focus On Headline Inflation

FED

Relatively little impact on Fed Funds futures pricing after comments from Fed Governor Waller, with a 71bp hike for Jul and 181bps over the four meetings to year-end, despite generally hawkish comments. There were some interesting discussions around inflation measures (with paraphrased answers below):


* When asked preferred core inflation measures: "I look at CPI and headline PCE is our number. CPI is more heavily weighted towards shelter, I like that because that’s more consistent with what low and moderate income groups face - I don’t dismiss it and look at it very seriously."

* Particular focus on higher headline rate, when asked on what happens as core measures begin to look reasonable but more elevated on headline number with energy and food shock from Ukraine war: "Whatever the cause of is I don’t care. We picked headline inflation as our target so at the end of the day we need to get headline inflation down as best we can. I like to look at core because it gives me some idea of where we might be headed, it could be wrong, but headline is our target and that’s what we’re looking at."
* Core PCE is clearly still important though. "Core PCE has been growing at 0.3% M/M for four months, that’s 4% annualized and double our target, that’s not acceptable. I need to see inflation and core PCE in particular coming down much closer to 2.5-3% by the end of the year to be comfortable thinking about backing off interest rate hikes towards the end of the year or beginning of next year. Right now that doesn’t look like that’s going to happen but I’d need to see it ticking down to two tenths a month to give any indication that inflation going forward is going to be much lower."
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