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Fed board member says one-point rate hike is possible to help tame inflation

WASHINGTON — Christopher Waller, a member of the Federal Reserve Board of Governors, said Thursday he would be willing to support a huge 1 percentage point hike in the Fed’s short-term interest rate later this month. though the upcoming economic data points to robust consumer spending.

Such an increase would mark a further acceleration in Fed rate hikes as it intensifies its fight against accelerating inflation. Faster rate hikes would increase the risk that the central bank’s anti-inflationary policies will cause a recession. The Fed hasn’t raised its rate one percentage point since 1981.

In remarks prepared for a speech in Idaho, Waller said he still supported a 0.75% hike at the central bank’s next policy meeting in two weeks, even after a government report on Wednesday showed consumer inflation accelerating to a new 40-year high.

But other economic data — including a Friday report on June retail sales and several reports on sales and house prices — will be released ahead of the Fed’s next meeting. If those numbers “are materially stronger than expected,” Waller said Thursday, “that would make me lean toward a bigger upside.”

Wednesday’s inflation report showed prices rose 9.1% in June from 12 months earlier, the biggest such increase since 1981. Although much of the inflation was due to rising food and fuel costs, price increases were widespread and, in many cases, accelerating in these areas. such as rents, restaurant meals and other economic services.

Financial markets have increasingly priced in expectations of a 1 percentage point hike at the July 26-27 Fed meeting, although most analysts still believe a 0.75% increase is more likely.

But after Wednesday’s inflation report, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, suggested “everything is on the line” at this Fed meeting – including a potential interest rate hike. a point.

In an interview on Bloomberg TV Wednesday night, Cleveland Fed chief Loretta Mester declined to say what size of rate hike might be on the cards at the Fed’s next meeting. But she said the consumer inflation report “was uniformly bad – there was no good news in this report”.

In his remarks on Thursday, Waller dismissed concerns that the economy could be approaching a recession. He pointed to healthy job gains this year and an unemployment rate that’s near a half-century low.

These job gains, he said, “leave me quite confident that the U.S. economy did not enter a recession in the first half of 2022 and that the economic expansion will continue.”

As a result, a “soft landing” in which the economy grows at a slower pace, bringing inflation back toward the Fed’s 2% target, “is very plausible.”

With an economy still growing, the Fed needs to focus on inflation, Waller added. Wednesday’s inflation report “was a major disappointment.”

“No matter how you look at the data, inflation is way too high and my job is to bring it down towards our 2% target,” he said.

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Post expires at 3:16am on Thursday July 21st, 2022