Fed’s Waller backs another massive interest rate hike in July
Federal Reserve Governor Christopher Waller said Saturday he would like to see another 75 basis point interest rate hike at the next policy meeting in late July.
Waller supported the Fed’s decision to raise its benchmark rate by 75 basis points last week to a range of 1.5 to 1.75%. This is the biggest rate hike since 1994.
“In my opinion, and I speak only for myself, if the data comes in as expected, I will support a similar sized decision at our July meeting,” Waller said at a roundtable hosted by the Dallas Society for Computational Economics.
If the Fed increased another 75 basis points in July, it would mean that it has raised its key rate by nearly 225 basis points since March. The last time the central bank raised its benchmark rate this much took three years, from 2016 to 2018.
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Waller said “it shouldn’t have been a surprise” that the Fed’s benchmark interest rate would rise rapidly in 2022.
After all, he says. the Fed aimed to return the economy to its pre-pandemic strength. Policymakers have said they will not raise the policy rate near zero until these conditions are met. The Fed’s benchmark rate was in a range of 1.5% to 1.75% before the pandemic hit in early 2020.
As a result, any of the well-known rules of interest rate policy would indicate that the benchmark rate should rise much faster than in the past once the central bank begins to tighten monetary policy.
Many outside observers critical of Fed policy note that the central bank was still buying assets in March when the rate of consumer price inflation hit a 40-year high of 8.6%.
Waller blamed the Fed’s sluggish response to inflation on the Fed’s directives to slow its asset purchases passed in December 2020.
In this forward guidance, the Fed said it would not stop buying assets “until substantial further progress” has been made toward the maximum employment goal.
Waller said he thinks the guidelines are too “tight” and don’t give the Fed the flexibility to slow and stop asset purchases and then start raising its benchmark rate to fight rising temperatures. ‘inflation.
“If we had less restrictive cut criteria and started cutting earlier, the FOMC might have more flexibility in when to start raising rates,” Waller said.
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rose by 8bp to 3.24%. Since the beginning of the year, the return has increased by 1.74 percentage points.