Federal Reserve Governor Christopher Waller says the Federal Reserve might need to raise interest rates to 0.5 percent in mid-March to stem high inflation.
Waller’s comments Thursday during a speech at the University of California, Santa Barbara, came as inflation remains at a decades-high level: January’s year-over-year Consumer Price Index soared 7.5 percent, the largest 12-month increase since 1982.
Still, Waller said the pace of interest rate hikes will depend on future data. He noted that the target range could be raised by one-quarter of a point at each of the next four meetings, but that pace could be doubled in March if upcoming inflation and job readings “indicate that the economy is still running exceedingly hot.” He said Russia’s recent invasion of Ukraine, which reverberated in economic markets worldwide, could lead to worsening economic conditions requiring “modest tightening.”
“If high inflation persists, then I would most likely support that we continue hiking, and potentially increase the pace of tightening,” Waller said. “If inflation moderates in the second half of the year, as I expect, and as market participants expect, then we can slow the pace of tightening or even pause.”
As reported by the Associated Press, other Fed officials have pushed back against a bigger hike in recent days, including Patrick Harker, president of the Federal Reserve Bank of Philadelphia, on Thursday. On Feb. 18, Fed Gov. Lael Brainard and John Williams, president of the Federal Reserve Bank of New York, endorsed a series of quarter-point hikes starting in March.
To Waller, the target range of the interest rate policy should be “up to 1 to 1.25 percent early in the summer,” which would be slightly below pre-pandemic rates. At that time, inflation was lower and the Fed’s balance sheet was less than half of its currently nearly $9 trillion total. Waller said the Fed should start to reduce its balance sheet no later than July. The FOMC has already indicated it will raise interest rates at least three times this year to combat inflation and end asset purchases in March.