Fed's Waller says rate increases possible

Federal Reserve Governor Christopher Waller said on May 22 that he wants the U.S. central bank to stop signaling that its next move is more likely to be a rate cut than a rate increase. In a speech posted by the Federal Reserve Board, Waller said inflation “is not headed in the right direction” and that he would support removing the “easing bias” from the policy statement. He said he was not calling for an immediate increase in rates, but added that he could no longer rule one out later if inflation does not ease. His remarks came in Frankfurt, Germany, and were published the same day in a video that circulated widely online. ### What exactly did Waller say about future rate moves? Christopher Waller said on May 22 that “a rate cut is no more likely in the future than a rate increase,” according to the text of his speech on the Federal Reserve’s website. He said he would back removing language in the Fed’s statement that points markets toward additional easing. Waller also said, “I can no longer rule out rate hikes further down the road if inflation does not abate soon,” while adding that he did not think policymakers should be considering rate increases in the near term. (federalreserve.gov) He said the labor market was on a “more stable footing” but not strong enough to justify an immediate move higher in borrowing costs. ### Why was that notable coming from Waller? (federalreserve.gov) January 30 marked a very different public stance from Waller. In a statement released after that month’s Federal Open Market Committee meeting, he said he had dissented in favor of a 25-basis-point rate cut because inflation excluding tariff effects was near target and the labor market looked weak. May 22 therefore showed Waller moving from advocating easier policy to arguing that the Fed should no longer lean toward cuts. (federalreserve.gov) Reuters described him as an influential policymaker who until recently had supported lower rates. ### What changed in his explanation? Frankfurt was where Waller tied his new view to higher energy and commodity prices linked to the conflict in the Middle East. (federalreserve.gov) He said the conflict had constrained supplies, raised petroleum and other goods prices, and created uncertainty about how long those effects would last. Waller said recent labor-market data suggested conditions were stabilizing, while higher energy and commodity prices were pushing up headline inflation and other goods prices. (finance.yahoo.com) He said that combination had led him to support a pause in rate cuts at the Fed’s April meeting and now led him to favor a more balanced policy statement. ### How did markets react on the day? (federalreserve.gov) Friday trading shifted after Waller’s remarks, according to Reuters. Contracts tied to the Fed’s policy rate reflected about a two-in-three chance of a quarter-point increase by the October meeting and nearly even odds of a hike by September, Reuters reported, compared with expectations before his remarks that pointed to December for a first increase. (federalreserve.gov) Reuters also reported that three Fed officials had dissented at the April meeting in favor of changing the statement language then. Waller’s comments, the report said, added to the policy choices facing incoming Fed Chair Kevin Warsh. ### Where did the “rate increases are possible” framing come from? A YouTube video published on May 22 carried the headline “Fed’s Waller Now Says Rate Increases Are Possible.” The Federal Reserve’s own speech text provides the underlying language for that framing, including Waller’s statement that he could no longer rule out hikes later if inflation failed to improve. (finance.yahoo.com) May 22 is the key date for both the speech and the online circulation of the remarks. (finance.yahoo.com) The next scheduled Fed policy meeting is June 16-17, when Kevin Warsh and the Federal Open Market Committee are due to issue a new statement. (federalreserve.gov) (youtube.com)