Federal Reserve Governor Christopher Waller said on Wednesday that inflation seems poised to continue slowing this year but the US central bank’s battle to reach its 2% target “might be a long fight” with monetary policy kept tighter for longer than anticipated, as Reuters reported.
“There are signs that food, energy, and shelter prices will moderate this year,” Waller said in remarks prepared for delivery at an Arkansas State University conference, and that the Fed’s rapid increases in interest rates had begun “to pay off.”
“But I’m not seeing signals of … quick decline in the economic data, and I am prepared for a longer fight,” Waller said.
The surprisingly strong gain of 517,000 jobs in January showed the economy was holding up well, for example, Waller said, but also meant that “labor income will also be robust and buoy consumer spending, which could maintain upward pressure on inflation in the months ahead.”
Though wage growth has slowed, the decline is “not enough,” Waller said.
“The Fed will need to keep a tight stance of monetary policy for some time.”
US Dollar update
The bulls are in charge while above 103.00 but the price is testing the dynamic trendline support. If this were to give way, a bearish thesis can be drawn for a continuation lower below 103.00.
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The Federal Reserve’s newest voting member, Christopher Waller, does not foresee an impending decline in inflation. Waller, Executive Vice President and Director of Research for the Federal Reserve Bank of St. Louis, stated in a recent interview that “there is no indication of a quick decline in inflation.”
Waller’s comments come at a time when data from the Bureau of Labor Statistics show inflation rising steadily. April saw the Consumer Price Index grow by 4.2% from a year prior – the largest year-over-year increase since 2008. Economists are warning of a coming spike in prices due to the lagging effects of the pandemic-induced lockdowns, and others have forecast that inflation could reach 5% this summer.
Waller however downplayed concerns of a sharp increase in inflation, pointing to the Fed’s ability to control the situation. He stated that the Fed monitors inflation “very closely” and was “confident” that it “will take whatever course of action is necessary to fulfill our dual mandate.”
When asked to comment on how the Fed could help shape perceptions of inflation, Waller said that communication is “critical” and that the Fed needs to ensure that the public understands the steps being taken to address inflation.
The Federal Reserve has sought to mitigate the effects of a rapidly inflating economy with a $120 billion bond-buying program, as well as a new round of targeted loan and liquidity measures. Waller urged patience, stating that the Fed “needs to allow some time for the economy to catch up” before taking any further action.
Waller’s comments provide a sobering reminder that inflation is a serious concern for the Fed, and that the central bank is determined to act on it. With Waller’s recent assessment, the Fed appears poised to take whatever steps necessary to bring inflation back in line with its target rate.