Fed’s Waller backs ‘significant’ September hike, joining Bullard

Federal Reserve Governor Christopher Waller said he favors “another significant” increase in interest rates when the central bank meets later this month, signaling his backing for a 75 basis-point move.

“Inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward,” Waller said in the text of his remarks to the Institute for Advanced Studies in Vienna, Austria. “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.”

His remarks were the latest to stress the Fed’s commitment to cooling the hottest price pressures in close to four decades.

Earlier, St. Louis Fed President James Bullard told Bloomberg in an interview that he leans toward another 75-basis-point move in September. Kansas City Fed chief Esther George separately said there was a “clear cut” case to continue to act, though she argued that officials should prioritize steadiness over speed.

U.S. central bankers are raising interest rates rapidly to get inflation under control. Chair Jerome Powell has kept the option open for another 75 basis-point move in September — following increases of that size in June and July — or a half-point increase, depending on the data. Pricing in futures markets show investors have almost fully discounted the bigger move.

Officials will get an important update on Tuesday with the release of consumer prices for August. Economists surveyed by Bloomberg forecast an 8.1% rise for the 12-month period versus 8.5% in July, with the deceleration likely due to a continued drop in gas prices.

“While I welcome promising news about inflation, I don’t yet see convincing evidence that it is moving meaningfully and persistently down along a trajectory to reach our 2% target,” Waller said. “Until I see a meaningful and persistent moderation of the rise in core prices, I will support taking significant further steps to tighten monetary policy.”

He also suggested that after this month’s meeting, the Fed will shift more toward data dependency, while spelling out that this meant he could not predict how high or quickly rates would have to rise.

“Future decisions on the size of additional rate increases and the destination for the policy rate in this cycle should be solely determined by the incoming data and their implications for economic activity, employment, and inflation,” he said. 

Waller said he expects the Fed to keep hiking rates “until at least early next year.”

Investors have hardened bets that the Fed will go big again after hawkish comments from other Fed officials on their determination to cool inflation. That trend continued after the European Central Bank raised rates on Thursday by 75 basis points, and futures markets show a Fed hike of that size almost fully priced in for later this month.

“We need to act now, forthrightly, strongly as we have been doing,” Powell said Thursday in remarks at the Cato Institute’s monetary policy conference in Washington. “My colleagues and I are strongly committed to this project and will keep at it.”

The U.S. economy has fared well on the back of steady consumer spending even as higher rates bite down on housing and investment. The labor market remains strong with unemployment at 3.7%.

Fed officials hope to engineer a rare soft landing where growth moderates and inflation falls with a low cost to employment. But they are also concerned that public expectations on future prices start to drift higher after remaining above their 2% target for more than a year.