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The Federal Reserve has raised interest rates significantly throughout the economy and now it the time to “slow, but not halt” the pace of increase, said Federal Reserve Governor Christopher Waller, on Friday.
“I currently favor a 25-basis point increase at the FOMC’s next meeting at the end of this month,” Waller said, in remarks to the Council on Foreign Relations.
That is a smaller rise than the half-percentage point rate hike Fed officials approved last month and the four three-quarter of a percentage point increases they engineered over the summer and fall.
Waller’s support for a slower pace of increase in the policy rate makes it highly likely to be agreed to by his colleagues.
A small number of Fed officials wanted another half-point increase but don’t seem to be pounding the table about it.
Waller did stress that the Fed isn’t done tightening monetary policy.
“We still have a considerable way to go toward our 2% inflation goal, and I expect to support continued tightening of monetary policy,” he said.
Last month, Fed officials penciled in a plan to raise the Fed’s benchmark rate to a range of 5%-5.25%.
Only two of 19 Fed officials penciled in a peak Fed benchmark rate below 5%.
Krishna Guha, vice chairman of Evercore ISI, has argued for the past week that the Fed is set for a “hawkish 25” at its meeting on Jan. 31-Feb.1.
Given the tame consumer inflation report released last week “the Fed was set to slow absent a strong reason not to,” he said. The policy debate will be about how to frame the move in a way that keeps the rate path and financial conditions under sufficient control, he added.
U.S. stocks
DJIA,
SPX,
were higher on Friday, while the yield on the 10-year Treasury note
TMUBMUSD10Y,
moved up to 3.49% after hitting four-month lows earlier in the week.
In his remarks, Waller said he is sticking to his view that the Fed can slow inflation without seriously damaging the labor market.
He said that he expects the economy to slow this quarter from his estimate of around 2% growth in the final three months of 2022.
The Fed’s goal in raising interest rates is to dampen demand and economic activity, he noted, and there is now “ample evidence” that this is what is going on in the business sector.
“The goal is not, I would emphasize, to halt economic activity,” he said.
On inflation, Waller said he was cautious because core consumer inflation basically moved sideways last year. It started at a 6% annual rate last January and finished the year at 5.7%.
“We do not want to be head-faked like we were in 2021,” Waller said.
