Fed’s Waller hints at rate ‘hike’, ‘skip’ in June, but no ‘pause’

Ahead of FOMC minutes, Fed’s Christopher Waller stated, on Wednesday, that while the US central bank may decide not to raise interest rates at its meeting next month, he is concerned about the lack of progress on inflation and believes that the rate-hiking campaign would likely continue.

Waller made the statement in prepared remarks for delivery to a University of California Santa Barbara Economic Forecast Project event. “I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective,” Waller stated. However, how the data come in over the following three weeks will determine whether we should hike or skip the June meeting. Two additional reads on inflation as well as information on what constitutes a “read” will be crucial, he said.

His opinions would also be influenced by changing credit conditions since the series of regional bank collapses that started in March, Waller added. We must preserve our flexibility over the best course of action to adopt in June between now and then.

In spite of this, he continued, “prudent risk management would suggest skipping a hike at the June meeting but leaning towards hiking in July based on the incoming inflation data.” Even if delaying a rate hike at the June 13-14 meeting is justified, he said.

The Federal Reserve raised its policy rate target to a range of 5.00%-5.25% earlier this month, and Fed Chair Jerome Powell said that may be high enough for central bankers to stop their tightening campaign and evaluate the effects on the economy so far.

The rapid interest rate increases the U.S. central bank made last year were motivated in part by Waller’s typically hawkish views on the necessity of taking stronger action against inflation. According to him, the 5.5% core consumer inflation rate is “too high” and that the labour market needs to open up given the 3.4% unemployment rate and 4.4% hourly pay increase.

Given these worries, Waller’s willingness to consider forgoing the 11th consecutive rate hike next month is noteworthy, as is his belief that the Fed may not yet be finished. Credit conditions will be clearer by July, and if banking conditions haven’t gotten too tight, “hiking in July could well be the appropriate policy,” according to the report.