Federal Reserve Governor Chris Waller said on Friday that interest rates should remain at current levels because higher oil prices could have a lasting impact on inflation.
But he’s not ruling out rate hikes if inflation doesn’t come back down. “My current policy position is to hold rates steady for the near term,” Waller said in a speech titled “Policy risks have changed” in Frankfurt, Germany. “But I can no longer rule out rate hikes further down the road if inflation does not abate soon, and that is especially true if measures of inflation expectations, some of which have risen lately, show signs of becoming unanchored.” Waller stressed that he doesn’t think the Fed should be considering rate increases in the “near future.” How the Fed rate decision affects your bank accounts, loans, credit cards, and investments He cautioned that raising rates now could cause damage, noting that the oil shock’s effect on prices could dissipate soon, in which case, raising rates could only begin to bite after inflation has started coming back down
He said interest rates are still restricting the economy right now. Still, Waller said inflation is not headed in the right direction, and based on recent data, he would support removing the “easing bias” language in the Fed’s policy statement to make it clear that a rate cut is no more likely in the future than a rate increase. To support cutting rates, Waller said he would need to see inflation improve or a “significant deterioration” in the job market.
Waller, for some time, was more worried about the job market and was one of the most dovish members of the Fed, supporting rate cuts. He now says inflation is the bigger concern, as he sees the job market as stable. He noted that inflation will largely be determined by the length of the Iran conflict — namely, how severely supply chains are disrupted and the pass-through of input costs to final product prices.