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Fed Governor Christopher Waller says he’s prepared to take rates past ‘neutral’ to fight inflation

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Christopher Waller (the nominee by President Donald Trump to be the Federal Reserve governor) listens at a confirmation hearing of Senate Banking Committee in Washington D.C. on Thursday, February 13, 2020.

Andrew Harrer | Bloomberg | Getty Images

Christopher Waller of Federal Reserve stated Monday that interest rate hikes will continue throughout 2019, as part of efforts to keep inflation under control.

The central bank official stated that he supports any increase above the neutral level, which is neither supportive nor restrictive for growth.

Waller expects rate increases of at least 2 percent from the Fed according to estimates Waller received in March.

Waller, speaking in Frankfurt, Germany, said that over a longer duration, he would learn more about the effects of monetary policies on demand and how they are changing. Waller said, “If data suggests that inflation remains stubbornly high,” he was prepared to go further.

Statements support the sentiment reflected within minutes from the rate-setting Federal Open Market Committee meetingIt was held in May. According to the meeting summary, officials believed that a more restrictive policy stance may be appropriate depending on changes in the economic outlook and risks to it.

Markets expect the Fed to increase benchmark borrowing rates by between 2.5% and 2.55% in order to maintain a neutral rate. If inflation rises, however, it is likely that the Fed will increase benchmark borrowing rates even more. The current fed funds rate is between 0.75 and 1.1%.

Minutes also indicatedAt the next few meetings, policymakers expect rate increases of 50 basis points. Waller stated that he supports this position as the Fed seeks tame an inflation rate near its highest point in over 40 years.

Waller stated that he would not take 50 basis point hikes off of the table unless he sees inflation closer to 2 percent. Waller stated, “And by the end this year, I favor having the policy interest rate at an elevated level so it reduces demand for goods and labor and brings it closer to supply, reining in inflation.”

The data released on Friday showed that inflation still accelerated in AprilHowever, it is moving at a slower rate. The Fed’s most closely watched metric, Core Personal Consumption, saw a 4.9% increase in the month compared to a year earlier. This is down from the 5.2% recorded in March. The headline PCE inflation rate, which includes food and energy, increased 6.3% compared with 6.6% in March.

Waller stated that he believes the Fed is able to raise rates and reduce demand without leading to an economic crisis. Partly, Waller said that the Fed will try to lower labor demand while not causing an increase in the unemployment rate. There are currently 5.6 million more job openingsThe Bureau of Labor Statistics says that there are more available workers than they have.

Of course, many factors affect the economic trajectory, not least how COVID-19 is developed and the Ukraine War. “I am optimistic from this discussion that the strong labor force can handle higher rates of unemployment without significant increases in rate,” he stated.

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