Federal Reserve governor Christopher Waller, who has been a key voice pressing the central bank to continue to raise interest rates to cool inflation, now says he doesn’t see the need for any quick action.
Recent economic data indicate the Fed “can proceed carefully,” Waller said, which he noted was in line with Fed Chair Jerome Powell’s speech at the bank’s annual summit in Jackson Hole, Wyo., late last month.
“There is nothing that is saying we need to do anything imminent, anytime soon, so we can just sit there [and] wait for the data,” Waller said.
The Fed will hold its next policy meeting Sept. 19-20.
Traders in the derivative markets are convinced the Fed will refrain from raising interest rates again at that meeting.
In his comments, Waller stressed he was being careful to not say that the Fed has won the battle against high inflation.
“I want to be very careful about saying that we’ve done the job on inflation until we see a couple of months continuing on this trajectory,” he said.
“We’ve got two good reports in a row. We can wait and see what a third one looks like,” he said.
Waller said the economy was pretty strong and could handle one more monetary tightening move.
“I don’t think one more hike would necessarily throw the economy into recession if we did feel we needed to do one,” Waller said.
The August job report, released last Friday, clearly shows the labor market is starting to soften, but the unemployment rate, at 3.8%, is roughly where it was one year ago, he noted.
Asked if the Fed could achieve a soft landing for the economy and avoid a recession, Waller said “the way the data is coming in, it is looking pretty good.”
The 10-year Treasury yield BX:TMUBMUSD10Y inched up to 4.22% in early trading on Tuesday.
Asked about the rising bond yields, Waller said they “are probably about where they should be.”
“We wanted rates to be up…they are not going off the charts,” he said. “So its not like longer-term yields are super-high and causing problems for the economy,” he added.
Waller said the Fed was keeping a close eye on the commercial real estate market. He said loans have to be refinanced, but over the next two or two-and-a-half years.
“We are not seeing anything that is going to cause a huge shock to the economy. Because it is totally predictable. You can see all this coming,” he said
There are questions about who will bear any potential losses if higher interest rates stay high, he said.
“But right now, everything I’ve seen, these things are manageable,” Waller said.
U.S. stocks DJIA SPX opened lower after the long holiday weekend.
