UNITED STATES - Federal Reserve Governor Christopher Waller has expressed optimism about the effectiveness of the Fed's interest rate hikes in tackling inflation. Speaking at the American Enterprise Institute Tuesday, Waller pointed to recent economic indicators that suggest a deceleration in economic activity, which could help bring inflation closer to the Fed's 2% target.
Waller's comments come after a series of aggressive rate hikes by the Fed, which has raised the key short-term interest rate to around 5.4% since March last year. This policy stance, the most assertive in two decades, aimed to combat the persistent high inflation that peaked at over 9% in June 2022 but has since decreased to just above 3% in October 2023.
Despite the notable decrease in inflation and stable prices month-to-month from September to October, Waller remains cautiously optimistic. He acknowledged that the October consumer price index showed no change from September, signaling a broad-based slowdown except for service prices excluding housing, which are not moderating at the same rate. Moreover, Waller pointed out that long-term Treasury yields remain high despite some loosening of financial conditions following the Fed's decision to maintain interest rates at their 22-year peak for two consecutive meetings.
The cooling economic signs include a slowdown in consumer spending and employment, as well as retail sales and industrial production sectors. These indicators, according to Waller, are evidence of the economy's response to the Fed's measures. He highlighted that the annual economic growth pace, which was nearly 5% during the July-September quarter, is now showing signs of slowing.
While Waller's growing assurance is a positive sign, he also cautioned against complacency given inflation's resistance to subside fully. He emphasized the importance of upcoming economic data, including personal consumption expenditures, which will be critical in informing future monetary strategies.
Market forecasts suggest that there may be no change in interest rates at the upcoming Federal Open Market Committee (FOMC) meeting on December 12-13, as the central bank takes stock of the economic data and continues its efforts against rising prices. The Fed's next moves will be closely watched as they seek to navigate the economy toward a stable inflation rate without triggering a significant downturn.
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