The Fed’s Chris Waller Talks Interest Rates, Inflation and Recession

On Friday, Federal Reserve Governor Chris Waller discussed interest rates, inflation and recession fears in prepared remarks.

Speaking at a conference in the Austrian capital of Vienna, Waller said he expects interest rate hikes to continue at least until “early next year” so that the American central bank is trying to obtain inflation closer to its 2% target.

However, he noted that the Fed’s “policy track” would depend on the next economic data.

“Six months ago, I would not have thought we would be where we are today, with inflation so far off target, after a significant policy tightening with a series of sharp rate hikes. and reducing the balance sheet,” he said.

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Federal Reserve Building in Washington, DC

This May 4, 2021 file photo shows the Federal Reserve Building in Washington, DC (AP Photo/Patrick Semansky, File/Associated Press)

The Fed approved four interest rate hikes this year, including two consecutive 75 basis point hikes in June and July. Officials have suggested that a third oversized rate hike is likely when the Federal Open Market Committee (FOMC) meets later in September.

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Waller voiced support for “another significant hike” at the September FOMC meeting.

“After that, the clamping path will continue until we see clear and convincing evidence that inflation is falling significantly and persistently towards our 2% target,” Waller said.

Waller also said that if inflation “doesn’t moderate or rise further this year,” he thinks the policy rate “will likely have to move well above” 4%. On the other hand, if inflation “suddenly decelerates”, then he thinks the rate could peak “at less than 4%”.

Federal Reserve

The Marriner S. Eccles Federal Reserve Building in Washington, DC on July 6, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)

Waller noted that inflation for the consumer price index and the personal consumption expenditure index – the Fed’s preferred indicator – slowed in July, adding that inflation remains “too high”.

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“Inflation is widespread, driven by strong demand that is only beginning to moderate, a continued lag in labor force participation, and supply chain issues that may be improving in some areas but are still considerable,” he said.

federal reserve building

The Federal Reserve Building in downtown Washington, DC (iStock/iStock)

During his prepared remarks, Waller also mentioned recession fears. Gross domestic product fell in the first two quarters of 2022. According to the National Bureau of Economic Research, recessions are technically defined by two consecutive quarters of negative economic growth and characterized by slowing retail sales, high unemployment, declining incomes and low or negative GDP growth.

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“Fears of a recession beginning in the first half of this year have faded, and the robust US labor market gives us the flexibility to be aggressive in our fight against inflation,” Waller said.

He said the spending data was “supportive of continued expansion,” but also noted there were signs of moderating U.S. economic activity, which he said is “what the FOMC trying to achieve by tightening monetary policy”.

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