Federal Reserve Alert! Speech by Governor Christopher J. Waller: 'We haven't yet made meaningful progress on inflation and until that progress is both meaningful and persistent'
Federal Reserve Alert! Speech by Governor Christopher J. Waller: 'We haven't yet made meaningful progress on inflation and until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed's balance sheet'
Source: https://www.federalreserve.gov/newsevents/speech/waller20221006a.htm
Other comments of note from Waller:
Recent data on economic activity suggest that after a slight contraction in gross domestic product in the first half of this year, the economy is posed for modest but below-trend growth in the latter half.
Since I last spoke about the economic outlook on September 9, we have received two important pieces of data on inflation for August, consumer price index (CPI) and the price index for personal consumption expenditures (PCE).2 Both reports confirmed that overall inflation remained much too high in August. Though gasoline prices fell, which was very welcome news for consumers, food prices increased notably. Core PCE inflation, which strips out the volatile categories of food and energy, moved up to 0.6 percent for the month, which implies an annualized rate of inflation of about 7 percent in core goods and services. Furthermore, core PCE inflation is not only high, but very persistent, with monthly prints of core PCE inflation at an annualized rate averaging about 5 percent this year. These numbers indicate that inflation is far from the FOMC's goal and not likely to fall quickly.
As far as achieving our dual mandate, this is a one-sided battle. We currently do not face a tradeoff between our employment objective and our inflation objective, so monetary policy can and must be used aggressively to bring down inflation.
The combination of high monthly inflation and a large weight in measuring overall prices means that shelter inflation is a key driver of overall inflation. Moreover, shelter inflation is a particularly persistent component of inflation and why I am focused on closely watching shelter inflation in determining my outlook for U.S. inflation. Unfortunately, the message is that shelter inflation will likely remain high for several months, meaning overall core PCE inflation will continue to be persistently high.
Asking rents and rents on new lease contractsโwhich do reflect contemporaneous rental market conditionsโhave been rising at a fast pace for more than a year. These increases have fueled shelter inflation so far this year, and they should continue to do so for at least the next six months.
So, as of today, I believe the stance of monetary policy is slightly restrictive, and we are starting to see some adjustment to excess demand in interest-sensitive sectors like housing. But more needs to be done to bring inflation down meaningfully and persistently. I anticipate additional rate hikes into early next year, and I will be watching the data carefully to decide the appropriate pace of tightening as we continue to move into more restrictive territory.
I am a little confused about this speculation. While there has been some increased volatility and liquidity strains in financial markets lately, overall, I believe markets are operating effectively. Actions by banks and financial regulators in recent years have greatly strengthened the financial system. Banks are well capitalized. Functioning in the Treasury, equity, and commodity markets remains orderly.
One factor that is likely helping to stabilize the financial system is the existence of monetary policy tools which could serve as a backup source of liquidity in times of financial stress. For example, swap lines that the Fed maintains with other central banks have been used effectively in the past to relieve stress in the financial system, and I think the availability of these facilities tend to be a stabilizing force at other times.
