Fed Governor backs ‘significant increase’ in benchmark rate

A Federal Reserve board governor has backed ‘another significant hike’ in interest rates later this month, saying the economy’s resilience gives officials ‘the flexibility to be aggressive’ in the fight against inflation.

The comments from Christopher Waller, who sits on the Federal Open Market Committee, come on the last day that officials can make public remarks before their next rate-setting meeting.

“Fears of a recession from the first half of this year have subsided and the robust US labor market gives us the flexibility to be aggressive in our fight against inflation,” he said on Friday. an event organized by the Institute for Advanced Studies in Austria.

“Based on what I know today, I support a significant increase at our next meeting on September 20-21 to bring the policy rate to a level that clearly restrains demand,” he added.

Unlike previous meetings, most policymakers resisted approving a rate hike of a specific size ahead of the rally, leaving open a debate over whether the Fed will make a third consecutive rate hike. 0.75 percentage points or will increase to half a point.

Expectations have grown up in recent days that the central bank will opt for the most aggressive option, which would raise the federal funds rate to a new target range of 3% to 3.25%.

Waller was the latest senior official to say this week that the Fed was committed to eliminating the rise and highlighting the risks of prematurely easing monetary policy. If inflation doesn’t fall or rise again this year, he said the federal funds rate will “likely” have to go “well above” 4%.

Earlier on Friday, James Bullard, the hawkish St Louis Fed chairman, told Bloomberg TV he was leaning “more heavily” toward a 0.75 percentage point rate hike. Kansas City Fed President Esther George, who also spoke on Friday, said that by taking “deliberate” action the central bank could prevent rising inflation from taking hold.

Waller said: “While I welcome the promising news on inflation, I do not yet see convincing evidence that it is moving significantly and persistently along a trajectory to reach our 2% target. The consequences of being cheated by a temporary slowdown in inflation could be even greater now if another misjudgment hurts the Fed’s credibility.

Waller’s comments echo those of Jay Powell, who spoke Thursday. Although the Fed chairman did not comment on the scale of the next rate hike, he said the central bank must “act now, frankly, strongly, as we have done and we must continue until get the job done.”

Lael Brainard, Vice President, Wednesday delivered a similar message, saying the Fed is “in this business for as long as it takes to bring inflation down.”

However, she balanced those comments by pointing out strengths that might mean the Fed won’t need to be as aggressive. She also said that “at some point” the central bank should consider the risks of excessive monetary policy tightening.

Another inflation report will be released this week ahead of the September meeting, with economists expecting the consumer price index to decline on a monthly and yearly basis.

Waller said decisions about the size of additional rate hikes and when the Fed might stop tightening monetary policy should be “determined solely by incoming data.”

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