Fed Governor Backs 0.25% Hike at Next Meeting

Federal Reserve Governor Christopher Waller stated Friday that he supports a quarter-percentage point interest rate rise at the next meeting. He waits for further evidence to support the claim that inflation is moving in the right direction.

Confirm market expectationsThe official from the central bank stated during a Council on Foreign Relations event held in New York, that the Fed can reduce the size of its rate increases.

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He also stated that it was not the right time to declare victory over inflation. He compared monetary policy with an airplane that flew higher and is now ready to descend.

“And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favor a 25-basis point increase at the FOMC’s next meeting at the end of this month,” Waller spoke in prepared remarks. “Beyond that, we still have a considerable way to go toward our 2 percent inflation goal, and I expect to support continued tightening of monetary policy.”

Although he did not give any details about the rates he expects, he was scheduled to take part in a question and answer session that followed the 1 p.m. speech. ET speech.

Others, including Patrick Harker, President of Philadelphia Fed, have suggested a 0.25 percentage-point increase at the Jan. 31 – Feb. 1 FOMC meeting. Waller, however, is the highest ranking member to make that clear.

Although the Fed and the market appear to be on the exact same page regarding where rates will go in the near term, there is still divergence.

The majority of central bankers believe rates will remain at an elevated level until the end, with markets seeing a spike in the summer and a subsequent drop.

Waller explained that the divergence lies mainly in perception of inflation’s future direction.

“The market has a a very optimistic view that inflation is just going to melt away. The immaculate disinflation is going to occur,” He spoke to Steve Liesman, CNBC’s executive producer, during a Q&A session following the speech. “We have a different view. Inflation’s not just going to miraculously melt away. It’s going to be a slower, harder slog to get inflation down and therefore we have to keep rates higher for longer and not start cutting rates by the end of the year.”

Waller was positive on the economy overall, noting that activity has slowed down in certain key areas, such as manufacturing and wage growth. Waller stressed that the Fed’s goal was not to “halt economic activity,” instead of bringing it back in balance so that inflation can fall.

Inflation gauges such as consumer price index and Fed’s preferred core individual consumption expenditures price indicator have fallen from the peak they reached last summer. He noted that although headline CPI fell 0.1%, the index excluding energy and food rose 0.3%. “is still too close to where it was a year ago.”

“So, while it is possible to take a month or three months of data and paint a rosy picture, I caution against doing so,” He said. “The shorter the trend, the larger the grain of salt when swallowing a story about the future.”

Waller stated that he still believes in a “soft landing” As possible for the economy, scenario would see “progress on inflation without seriously damaging the labor market.”

“So far, we have managed to do so, and I remain optimistic that this progress can continue,” He said.