Fed's Waller says no near-term policy change

Federal Reserve Governor Christopher Waller said on May 22 that he does not expect a change in U.S. monetary policy in the near term, even as he argued the central bank should drop language that signals a bias toward future rate cuts. In prepared remarks for a lecture in Frankfurt, Waller said inflation was “not headed in the right direction” and that recent data supported removing the Fed’s “easing bias” from its policy statement. He said that did not mean the Fed should be considering rate increases soon, because policy was already restrictive and the labor market was not booming. His comments came as investors continued to parse the Federal Open Market Committee’s April 29 decision, which split 8-4 and exposed unusually broad disagreement inside the central bank. ### What exactly did Waller say about the next move on rates? Christopher Waller said on May 22 that he would support removing the “easing bias” from the Fed’s statement “to make it clear that a rate cut is no more likely in the future than a rate increase.” In the same speech, he added: “That doesn't mean, however, that I think we should be considering rate increases in the near future.” (federalreserve.gov) Waller said he still saw policy as restrictive and warned that raising rates now could do damage if the recent oil-price shock faded before tighter policy took effect. He also said he would need either improvement on inflation or a significant deterioration in the labor market before considering a rate cut. (federalreserve.gov) ### Why was he talking about removing the Fed’s “easing bias”? May 22 remarks from Waller tied that shift to inflation data and to the economic effects of the Middle East conflict, which he said had constrained supplies and raised prices for petroleum and other goods. He said higher energy and commodity prices were pushing up headline inflation and other goods prices, and that inflation pressures were broadening. (federalreserve.gov) Reuters reported that Waller had until recently advocated lower rates, but now said the Fed should at least keep the current policy rate in place until it was clear inflation was moving back toward the central bank’s 2% target. Reuters also reported that contracts tied to the policy rate shifted after his remarks, with traders bringing forward bets on a possible rate increase. (federalreserve.gov) ### What happened at the April 29 meeting that made these comments stand out? The Federal Open Market Committee voted on April 29 to keep the federal funds target range at 3.5% to 3.75%. The Fed’s statement said the committee would consider “the extent and timing of additional adjustments” as it assessed incoming data, the outlook and the balance of risks. (kitco.com) The April 29 vote split 8-4. The Fed said Governor Stephen Miran dissented in favor of a quarter-point rate cut, while Beth Hammack, Neel Kashkari and Lorie Logan supported holding rates steady but opposed including an easing bias in the statement. Christopher Waller voted with the majority to hold rates unchanged. (federalreserve.gov) CNBC reported that it was the highest number of dissents at a single Fed meeting since October 1992. That meeting was also widely seen as Jerome Powell’s last at the helm before the leadership transition at the central bank. ### How did Waller explain his own shift since earlier this year? (federalreserve.gov) Waller said on May 22 that a year earlier he had supported reducing the policy rate because he expected tariff-related price increases to prove temporary. He said he had initially hoped the Middle East conflict would also be resolved quickly enough for the Fed to look through its effect on prices. (cnbc.com) Over the past several weeks, Waller said, uncertainty over the conflict and the way the energy shock could spread to other prices led him to back a pause in rate cuts at the April meeting. He said labor-market and inflation data since then had validated that judgment. (federalreserve.gov) ### What comes next from the Fed? June 16-17 is the date of the Fed’s next policy meeting, according to Reuters, and it is expected to be the first under incoming Chair Kevin Warsh. Reuters reported that three officials had already dissented in April in favor of removing the easing-bias language then. (federalreserve.gov) The April 29 statement remains the current policy framework until that meeting. It keeps the target range at 3.5% to 3.75% and says the committee will continue to monitor labor-market conditions, inflation pressures, inflation expectations, and financial and international developments. (federalreserve.gov) (kitco.com)