Fed’s Waller sees likelihood of more half-point rate hikes ahead

Getting inflation under control will require raising interest rates at a faster than normal pace, even though the pace of price increases has likely peaked, Christopher Waller, a board member at the Federal Reserve.

This means that the central bank will likely raise short-term rates by half a percentage point, or 50 basis points, at its May meeting, and possibly follow up with similar moves in the coming months. next few months, Waller told CNBC. The Fed normally increases in increments of 25 basis points. One basis point equals 0.01%.

“I think the data has come exactly to support this stage of policy action if the committee chooses to do so, and gives us the basis to do so,” he said in a live interview. Closing Bell” with CNBC’s Sara Eisen. “I prefer a front-loading approach, so a 50 basis point hike in May would be consistent with that, and maybe more in June and July.”

Markets have already almost fully priced in that level of increase at next month’s Federal Open Market Committee meeting, as well as the following session in June, according to data from the CME Group that tracks movements in the futures market. federal funds. Prices for July are also leaning in that direction, with a 56.5% chance of another 50 basis point rise.

This means that if the Fed chooses to act aggressively, it will come as no surprise.

Waller said he thinks the central bank can implement tougher policy now because the economy is strong enough to support higher rates. The Fed is looking to raise rates to prevent inflation from hitting its highest level in over 40 years.

“I think we will face inflation. We have defined our plans,” he said. “We are in a position where the economy is strong, so now is a good time to take aggressive action because the economy can handle it.”

Nonetheless, there is some disagreement on how aggressive FOMC members want to be in the battle against inflation.

In March, those in favor of a quarter-percentage-point hike held only a slim majority of those who wanted to double. Officials, through their public statements, have expressed differing views on how far the Fed should go, with Waller part of a group that wants rates to move above “neutral,” or the point where they don’t. are considered neither restrictive nor stimulating. The neutral funds rate is now estimated at around 2.5%.

On the other side of the debate, policymakers including Fed board member Lael Brainard and Chicago Fed President Charles Evans have said in recent days that they would rather bring the rate down. neutral, then assess what future actions may be necessary.

“I think we definitely want to move past neutral by the second half of the year, and we need to get closer to neutral as soon as possible,” Waller said.

St. Louis Fed Chairman James Bullard told the Financial Times that it was “fantastic” to think that rates could move into neutral while driving down inflation.

For his part, Waller said he was confident inflation would begin to decline, even if the Fed’s powers are limited to control lagging supply chains associated with the current rising price cycle.

“All we can do is lower the demand for these products and reduce the pressure on the prices people have to pay for these products,” Waller said. “We can’t produce more wheat, we can’t produce more semiconductors, but we can affect the demand for those commodities in a way that puts downward pressure and takes some pressure off inflation. .”

Earlier in the day, Treasury Secretary Janet Yellen, a former Fed chair, said of the agency’s board members, “It’s their job to bring inflation down.”

“They have a dual mandate. They will try to maintain strong labor markets while reducing inflation,” Yellen said during an appearance before the Atlantic Council. “And it’s been done in the past. It’s not an impossible combination, but it will take skill and also luck.”

Fed’s Waller sees likelihood of more half-point rate hikes ahead

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