Federal Reserve Governor Christopher Waller, speaking at George Mason University's Mercatus Center on Tuesday, reaffirmed the central bank's commitment to achieving its 2% inflation target through forceful monetary tightening measures implemented since early last year. Waller did not offer a near-term forecast for interest rates but emphasized the Fed's dual mandate of maximum employment and price stability.
Waller also stressed the importance of price stability for economic health, drawing attention to the monetary policy shift since the 1970s. This period was marked by uncontrolled inflation which has now been replaced by guidelines such as the Taylor principle. This rule prescribes an equivalent or higher increase in the federal funds rate in response to an inflation surge, thereby assuring an increase in real interest rates during policy tightening periods.
The recent actions of the Fed have resulted in a rate elevation, pushing the short-term policy rate to between 5.25% and 5.50%. Despite this aggressive rate-hiking campaign, the US economy has shown surprising resilience with a robust labor market and easing inflation as supply chains normalize.
Waller paid tribute to Bennett McCallum's legacy during his speech. Amid credit market turmoil, three Fed officials including Philip Jefferson suggested a possible pause in further tightening. The futures markets currently foresee less than a 20% chance of another quarter-point rate increase in the imminent Federal Open Market Committee meeting.
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