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Fed’s Waller says he’s prepared for ‘longer fight’ against inflation

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Federal Reserve Gov. Christopher Waller said he’s “prepared for a longer fight to get inflation down” and said interest rates need to remain high for “some time” to make sure intense price pressures are eradicated.

“Inflation remains quite elevated, and so more needs to be done,” Waller said in a speech at an agribusiness conference at Arkansas State University.

The Fed last week raised its benchmark short-term rate by 1/4 percentage point. Since early 2021 the Fed has jacked up the rate from near zero to a range of 4.5% to 4.75% as part of an effort to tame high inflation.

The central bank is on track to raise rates a “couple more times,” Chairman Jerome Powell said recently.

If so, the so-called fed funds rate could rise to a possible peak of 5% to 5.25% by May. The rate affects borrowing costs for consumers and companies on everything from credit cards fees and mortgages to business loans and daily transactions between large banks.

Waller did not say in his speech how far he wanted the Fed to raise rates, but he said he’s seen little evidence inflation is falling “quickly.”

As a result, the Fed needs to be prepared to keep interest rates at their peak for a while to make sure inflation is brought fully under control, he said.

“Some believe that inflation will come down quite quickly this year. That
would be a welcome outcome,” Waller said. “But I’m not seeing signals of this quick decline in the economic data, and I am prepared for a longer fight to get inflation down to our target.”

Read: Powell says jobs report shows Fed needs to keep raising rates, but he expects ‘significant’ slowdown in inflation

Waller said he’s most worried about a tight labor market that’s driven up wages at what Fed officials say is an unsustainable pace.

Rising wages could feed into the cost of everyday goods and services, they believe, and make it harder to get inflation under control.

The rate of inflation hit a 40-year peak of 9.1% last summer before slowing to 6.5% at the end of the year, based on the consumer price index. That’s still more than triple the Fed’s 2% inflation target and well above pre-pandemic levels.

“Though we have made progress reducing inflation, I want to be clear today that
the job is not done,” Waller said.

His message has been echoed this week by other senior Fed officials. New York Federal Reserve President John Williams, for instance, said high rates need to be maintained for “a few years” to fully subdue inflation.

Wall Street investors have been skeptical the Fed would maintain high interest rates, betting on a rate cut before the end of the year as the economy weakens.

Waller, for his part, said he think the economy is strong enough to continue to grow at a “modest pace” in 2023 and avert a recession.

“The big picture is that the U.S. economy is adjusting well so far to the higher
interest rates that are necessary to rein in inflation,” he said.


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