Recent inflation data ‘made me more comfortable’ about potential 50 bp hike in December

Federal Reserve Governor Christopher Waller said the recent rise in interest rates makes him open to the idea of ​​raising rates by 50 basis points at the December mid-term meeting.

“Looking ahead to the December FOMC meeting, the events of the last few weeks have made me more comfortable with the idea of ​​a 50 basis point cut,” Waller said at a conference in Arizona. , it’s important to remember that this would have been very conservative.”

Waller stressed that he would not make a final decision until he sees the next jobs report and the next inflation report, which is the Fed’s preferred measure of inflation.

Waller said that last week’s consumer price report was a “very welcome” drop in inflation, knowing that the decline in October was widespread – especially including the decline in consumer prices and the first decline in commodity prices since March. At the same time, he cautioned against reading too much into one report because inflation is still high and he is looking for higher prices to continue.

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Core CPI, which includes unchanged prices for food and energy (the so-called broad reading), rose 0.4% on a monthly basis, coming in below expectations of 0.5% and lower than the 0.6% rise seen in September and August.

Annually, the core CPI rose 6.3%, compared to 6.6% in September, 6.3% in August and 5.9% in July. The Fed likes to remove food and energy prices because they can be volatile.

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Christopher Waller testifies before the Senate Banking, Housing and Urban Affairs Committee in a hearing on his nomination to serve as a member of the Federal Reserve Board of Governors on February 13, 2020 in Washington, DC.  (Photo by Sarah Silbiger/Getty Images)

Christopher Waller testifies before the Senate Banking, Housing and Urban Affairs Committee in a hearing on his nomination to serve as a member of the Federal Reserve Board of Governors on February 13, 2020 in Washington, DC. (Photo by Sarah Silbiger/Getty Images)

The Fed Funds Rate currently stands at 3.75%-4%. As the Fed’s interest rates rise, Waller said the case for slowing increases becomes stronger.

“That would equate to a 50-basis-point rate hike,” Waller said. “Over time, the values ​​will reach a higher level, but we don’t know what the level will be because it depends on what has happened.”

Waller says the Fed’s policy is to raise rates well before they reach 2% since it will take months for the full effect of the rate hike to take effect. The monetary policy works slowly.

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Waller says any decision the Fed makes in the coming months will be heavily influenced by the rate hikes that took place earlier this year.

Although the Fed has raised rates by 3.75 percent this year, Waller said he believes policy is “out of bounds” and that higher interest rates are needed to keep inflation low.

“We have a ways to go,” Waller said. “I expect that a steady and steady decline in inflation to our target of 2 percent will require an increase in federal spending next year.”

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