Christopher Waller, a key Federal Reserve official, added his voice Wednesday to a rising number of Fed officials who have suggested that the central bank will likely slow the pace of its interest rate hikes beginning in December.
Waller, a member of the Fed’s Board of Governors, said he was open to raising the Fed’s key rate by a half-point next month in light of evidence that inflation may be cooling.
At each of its four most recent policy meetings, the central bank has raised its benchmark rate by an aggressive three-quarters of a point. The cumulative effect has been to make many consumer and business loans costlier and to raise the risk of a recession.
At the same time, Waller stressed that inflation remains painfully high. And he cautioned that there have been occasions in the past when economists thought inflation was falling only to see prices reverse course and accelerate again.
“The data of the past few weeks have made me more comfortable considering stepping down to a (half-point) hike,” Waller said in a speech in Phoenix. “It is important to remember that this would still be a very significant tightening action.”
The Fed has raised its key short-term rate this year at its fastest pace since the early 1980s — to a range between 3.75% and 4%, the highest level in about 15 years.
Those hikes have increased borrowing costs for mortgages, auto loans and credit cards, among other loans. Fed officials intend the higher rates to slow borrowing and spending and cool inflation pressures.
Waller’s remarks followed comments earlier Wednesday from Mary Daly, president of the Federal Reserve Bank of San Francisco. Daly said in an interview with CNBC that the Fed will likely raise its short-term rate at least a full percentage point above its current level.
Both Waller and Daly took pains, like Chair Jerome Powell at a news conference this month, to emphasize that rates will ultimately rise higher, even as the Fed raises them in smaller increments.
Waller also underscored his view that the inflation report for October, which showed slower price increases, was just one data point and not necessarily solid evidence that inflation is declining.
“I cannot emphasize enough that one report does not make a trend,” he said. “It is way too early to conclude that inflation is headed sustainably down.”
Waller noted that inflation showed signs of slowing late last year before heading higher again.
“I will not be head-faked by one report and will continue to watch the data between now and the December FOMC meeting,” he said.
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