Fed’s Waller Wants another 75 bps Hike to Fight Inflation

Fed’s Waller Wants another 75 bps Hike to Fight Inflation

On Saturday, Christopher Waller, the Governor of the US Federal Reserve, joint the list of central bankers who have vowed to do whatever it takes in order to combat inflation. It has only been three days since the US central bank hiked up its interest rate by 75 basis points in its fight against inflation and also indicated that there will be more hikes in the future.

Waller Ready to Go All-in

The Fed’s Governor was in Dallas for attending a Society for Computational Economics conference, where he delivered his speech. He remarked that if the data comes as they expect, then they would not hesitate to hike up the interest rate once more by three-quarters of a percentage point. He said that they were ready to go ‘all-in’ in order to stabilize prices.

Waller had been one of the earliest advocates in the Fed to have urged for a quicker pivot away from an easy monetary policy that had been adopted during the COVID-19 pandemic to a tighter one. He had urged the central bank to begin the process last year in August, when the target policy rate had stood at zero and they also had a bond buying program ongoing for offering support to the economy.

Fed Wants to Reduce Inflation

Late last year, the Federal Reserve had already begin to back away from their ultra-easy policy, but the process was slow. It was not until March of this year that the central bank finally put a stop to its $120 billion bond buying program and had begun hiking interest rates to stave off, what has now become the highest inflation seen in four decades.

The hawkish views of the Fed’s Governor reflect the goal of the central bank to tighten monetary policy, even if it means risking a downturn in the market, which seems quite likely. On Friday, the Fed stated that it was in an ‘unconditional’ fight against inflation. Raphael Bostic, the President of the Atlanta Fed had been the most dovish one in the central bank. But, he declared that they would do whatever is necessary for bringing down the inflation rate to the 2% target. The current inflation rate is three times that.

Future Expectations

The hike by the Fed on Wednesday is biggest made in a quarter of a century. Its overnight lending rate is now in a range of 1.50% to 1.75%. Forecasts show that most people now expect the rate to increase to about 3.4% in the coming six months. Last year, most people had thought that the rate would not move from zero until 2023.

Some critics believe that the delay of the Fed in tightening its monetary policy is the reason that inflation readings are now so high. The central bank had adopted the framework back in 2020, which did not increase interest rates due to low unemployment. According to Waller, it was the bank’s specific promises about when they would end their bond buying that was to blame.