Fed's Waller Throws Curveball: Rethinking Rate Hike Strategy


Christopher J. Waller, a member of the Federal Reserve Board in the United States, made the announcement on Tuesday that the most recent economic statistics give the central bank a chance to evaluate whether or not to hike interest rates.

He pointed out that currently, there are no compelling factors that would necessitate the bank to consider raising short-term loan rates.

“Recent economic news is going to allow us to proceed carefully," Waller mentioned in an interview with CNBC. He also added that "there's nothing that is saying we need to do anything imminent anytime soon, so we can just sit there, wait for the data, see if things continue on their current trajectory.”

Despite a rise in the unemployment rate from 3.5% in July to 3.8% in August, the U.S. Department of Labor stated on Friday that the economy managed to actively create jobs in August. The release of these figures coincided with breaking inflation news and market discussion of whether or not a more stringent monetary policy was needed to combat inflation.

Federal Reserve officials have recently stated that while inflation remains elevated, it is showing signs of decline. They emphasize that any future decision regarding an increase in the base interest rate will continue to be data-driven. The Federal Reserve last raised interest rates in late July, shifting them to a range of 5.25% to 5.50%.

The financial markets are indicating that the Fed’s rate hike cycle might be over. As per CME Group's FedWatch Tool, futures tied to the federal interest rate are pointing to a minimal likelihood of an increase during the September 19-20 meeting and approximately a 40% chance of an increase during the final two meetings of the year.

However, Waller cautioned against jumping to conclusions, noting that the Fed has before put its faith in data that seemed to show an uptick in inflation, only to have price pressures emerge higher than anticipated.

As far as the bond market goes, Waller highlighted that any potential additional rate hikes wouldn't significantly harm the labor market. Despite the increase in unemployment and certain indications of employment weakening, the level of hiring remains historically high, and so "it's not obvious that we're in real danger of doing a lot of damage to the job market even if we raise rates one more time," he said.

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