Federal Reserve Governor Christopher Waller said Monday that the central bank may need to raise interest rates in the near term if incoming data show inflation remains well above the Fed’s 2% target. He described policy as being at a crossroads, with Tuesday’s Consumer Price Index report set to play a central role in shaping the next move. Waller said officials should not become complacent if the data turn unfavorable.
He added that inflation could still gradually move back to target at current policy settings, but warned that another outcome is also possible: data in the coming weeks may show inflation staying elevated or even moving higher. In that case, tighter monetary policy could be required soon. Waller also said recent inflation reports suggest price pressures may be broadening across the economy, beyond the effects of last year’s tariff increases on imports or the recent rise in energy costs.
According to Waller, if core inflation comes in hot again this week, the Federal Open Market Committee would have to consider tightening policy in the near term. He said it would take several months of consistently softer inflation data before officials could conclude that inflation is moving in the right direction.
Federal Reserve Governor Christopher Waller said Monday that the Fed may need to raise interest rates in the near term if incoming data show inflation is still far above its 2% target.
Waller said monetary policy is at a crossroads, and that the next step will depend on new information including Tuesday’s Consumer Price Index, or CPI, report. If the data worsen, he said, this is not a moment for the Fed to become complacent.
He said inflation could still gradually return to 2% at the current policy setting. But he also warned that the next few weeks of data may show inflation staying high or even rising further, a scenario that would call for tighter monetary policy in the short run.
Waller also said he is concerned that recent inflation reports suggest price pressures are spreading across the economy, going beyond the effects of last year’s increase in import tariffs or the recent rise in energy costs. In his view, that may point to broader systemic inflation and would require a more restrictive policy response.
He added that if core inflation comes in hot again this week, the Federal Open Market Committee, or FOMC, would have to consider tightening policy in the near term. Waller said officials would need to see several months of lower inflation readings before concluding that inflation is moving in the right direction.
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