Federal Reserve Governor Chris Waller said in a speech on Friday he supports a “significant” increase in the central bank’s interest rate at the next policy meeting.
“Inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward,” Waller said at a conference in Vienna, Austria. “This is a fight we cannot, and will not, walk away from.”
"I support continued increases in the FOMC's policy rate and, based on what I know today, I support a significant increase at our next meeting on September 20 and 21 to get the policy rate to a setting that is clearly restricting demand," Waller said.
While inflation slowed in July, the Fed governor says it’s still too early to say inflation is moving meaningfully downward.
“I expect it will take some time before inflation moves back to our 2 percent goal, and that the FOMC will be tightening policy into 2023,” said Waller. “The policy rate will have to move meaningfully above this neutral level to further restrain aggregate demand and put more downward pressure on prices.”
Waller expects to see major increases in rents and owners' equivalent rent for some time, which will make its way into overall inflation.
Waller also believes the Fed has room to raise rates because fears of a recession in the first half of the year have faded away.
“I think the argument that we entered a recession in the first half of 2022 has pretty much ended—we didn’t,” said Waller. Economic growth slowed as the Fed hiked rates, but data now suggest an uptick in consumer spending in the third quarter, with Waller pointing to retails sales that grew 0.7% in July excluding volatile energy prices.
Waller’s comments come a day after Fed Chair Powell re-emphasized keeping rates high to fight inflation, noting that the Fed doesn’t want to risk American’s inflation expectations rising and that history cautions against prematurely loosening policy.
The Fed is expected to raise its benchmark interest rate by three-quarters of a percent at its September policy meeting for the third-straight meeting. The federal funds rate currently stands at 2.25%-2.50%.
A 75-basis point rate hike would bring the interest rate back above 3% for the first time since 2008.