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A senior Fed official said the central bank was prepared to keep its benchmark interest rate steady at its September policy meeting and said recent economic data did not suggest any “imminent” further monetary tightening.
Christopher Waller, one of the most hawkish members of the FOMC, votes at every policy meeting. He said on Tuesday it was in what he described as a “very good week for the data.”
“There’s nothing to suggest that we need to do anything immediately, so we can just sit there and wait for the data to see if things continue,” he told CNBC.
The comments echoed messages from Fed Chairman Jay Powell at the central bank’s annual symposium in Jackson Hole, Wyoming, last month, and came on the heels of two labor market reports that confirmed demand for workers, though still strong. , but the world’s largest economy continued to slow.
The Fed, which has raised its benchmark interest rate by more than 5 percentage points since March 2022, is now seeing more credible signs that inflation is falling back to its long-term 2% target, even if the deceleration has and is likely to continue. Yes – bumpy.
In data released last week, the Fed’s preferred measure of inflation — the core personal consumption expenditures index — rose at an annual rate of 4.2% in July. Meanwhile, the federal funds rate hovered between 5.25% and 5.5%.
Waller said he is highly concerned about the upcoming inflation data. Despite several months of “good reports” so far, he said it remained an open question whether the continued dovish policy was a “trend” or just a “fluke”.
“We’ve been burned twice before,” he said, noting that price pressures eased in 2021, only to reverse the following year. “I would say very cautiously that we’ve done our job on inflation until we see a few months to continue on that trajectory,” he said.
Future inflation reports showed consumer prices rose just 0.2% a month, suggesting the Fed is in “pretty good shape.”
As of June, most officials forecast the federal funds rate would peak this year at 5.5% to 5.75%, implying another 25 basis point hike in rates. Most economists and market participants believe the Fed has completed the rate-raising phase of its tightening cycle, although officials remain open to further action.
Powell and other policymakers have warned that further policy tightening will likely be needed if economic growth continues to be stronger than expected.
Waller on Tuesday pushed back on the notion that lowering inflation further would lead to massive unemployment and the risk of a recession. He said recent data confirmed the possibility of a so-called soft landing.
“Even if we raise rates again, it’s not obvious that we’re really in danger of doing serious damage to the job market.”
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