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LONDON – Federal Reserve Governor Christopher Waller said he supports a quarter-percentage-point interest-rate increase in December even if October inflation improves, while a half-point increase should be considered if the forthcoming core inflation reading remains around 0.3% or higher.
In a November 10 speech at the Bank of England Watchers Conference hosted by King’s Business School and the Money, Macro and Finance Society in London, Waller said inflation remained too high despite a stable labor market and solid economic growth.
His remarks describe his own policy preference, not a decision or commitment by the Federal Open Market Committee. October consumer price index data were due later Tuesday, and his prepared remarks discussed that report as information still to come.
Waller’s base case was a 25-basis-point increase at the December meeting. He said he would support that move even if the monthly inflation rate improved from September. A basis point is one-hundredth of a percentage point.
He then set out the condition under which he would consider a larger move: “But if the October CPI inflation data out later today are similar to the past two monthly readings – with core CPI inflation around 0.3 percent or even higher – then a stronger policy move may be needed. In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting.”
Waller said he had supported holding rates steady at the most recent meeting because the committee’s communications had already led markets to price in some tightening. That approach only works, he argued, if the anticipated increases are eventually carried out within a reasonable period.
The speech follows his earlier remarks about flexibility in the timing of rate increases. His latest comments place greater emphasis on following through and on the size of a possible December move if inflation fails to improve.
Describing the economy, Waller cited an initial estimate of 3.4% real GDP growth in the third quarter, an October unemployment rate of 4.1% and payroll growth of 165,000, along with upward revisions totaling 85,000 for the previous two months. He characterized labor supply and demand as roughly balanced.
He also questioned whether a “low hire, low fire” labor market was as healthy as its stable unemployment rate suggested, pointing to difficulties facing younger workers and people unemployed for longer periods. Those concerns, he said, did not change his near-term assessment that inflation was the central policy problem.
Waller said September personal consumption expenditures inflation, the Fed’s preferred gauge, was 3.7% over twelve months, with core PCE inflation at 3.1%. He warned that broad price pressures, including those associated with energy and the artificial-intelligence investment buildout, could persist. The speech’s disclaimer states that his views are not necessarily those of his colleagues on the Fed Board or the FOMC.
JBizNews Desk | London
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