Federal Reserve Governor Christopher Waller stated on May 13 (local time) that the Federal Open Market Committee should consider tightening monetary policy in the near term if core inflation data released this week shows another high reading. Waller made the remarks during a speech at the New York Association for Business Economics in New York, referencing the June Consumer Price Index scheduled for May 14 and June Producer Price Index for May 15. The statement reflects the Fed's ongoing assessment of inflation trends and appropriate policy responses as key inflation indicators approach release.
Waller Warns FOMC May Need to Tighten Policy on High Inflation Data
Waller stated during his NYABE speech that if this week's core inflation figures come in high again, the FOMC should examine options to tighten monetary policy in the near term. He referenced the upcoming June CPI data scheduled for May 14 and June PPI data for May 15 as the specific inflation indicators under consideration.
Fed Governor Cites Historical Policy Response Errors
Waller addressed the Fed's historical policy timing, stating: "As always, we must avoid the mistake of fighting the last war, and we should not react too hastily to suppress inflation this time just because we responded too late last time." He added: "However, at the same time, we must not repeat the same mistake of delaying our response too long as we did in 2021 and 2022."
Waller Criticizes Reliance on Anchored Inflation Expectations
The Fed Governor criticized a common view regarding inflation expectations, stating: "I often hear that because inflation expectations are well anchored, the central bank does not need to respond to inflation above target. This view is wrong." He explained: "When inflation significantly exceeds the target and the labor market is near full employment and stable, any serious policy rule would require raising policy rates to bring down inflation." Waller added: "Staring down inflation and hoping it melts away under our fierce gaze is not an option."
Policy Framework Requires Rate Hikes When Expectations Unanchor
Waller outlined the central bank's dual challenge when inflation expectations become unanchored: "If inflation exceeds the target and inflation expectations are not anchored, the central bank faces two problems. One is bringing inflation back down, and the other is re-anchoring inflation expectations." He stated: "In this case, even with the same level of above-target inflation, much larger and faster rate increases are generally needed. Furthermore, rate increases must be sustained for longer to suppress inflation and re-anchor inflation expectations." Waller emphasized: "In summary, high inflation and unanchored inflation expectations require a very aggressive policy response and accepting greater recession risk. This is why central banks are so concerned about situations where inflation expectations become unanchored."
Current Inflation Expectations Remain Anchored, Vigilance Required
Waller assessed the current state of inflation expectations, stating: "Fortunately, we are not currently in that situation." However, he cautioned: "But that does not mean we should be complacent in responding to inflation that significantly exceeds the target and is moving in the wrong direction."
FAQ
What did Fed Governor Waller say about policy tightening on May 13?
Fed Governor Christopher Waller stated on May 13 (local time) that if core inflation data released this week shows another high reading, the FOMC should consider tightening monetary policy in the near term. He made these remarks during a speech at the New York Association for Business Economics, referencing the June CPI data scheduled for May 14 and June PPI data for May 15.
Why does Waller emphasize aggressive policy responses to unanchored inflation expectations?
Waller explained that when inflation expectations become unanchored, the central bank faces two problems: bringing inflation back down and re-anchoring expectations. He stated this situation requires much larger and faster rate increases sustained for longer periods, along with accepting greater recession risk. He emphasized this is why central banks are concerned about unanchored inflation expectations, though he noted current expectations remain anchored.
What historical policy errors did Waller reference in his speech?
Waller referenced the Fed's delayed policy response in 2021 and 2022, warning against repeating the mistake of delaying action too long. He also cautioned against the opposite error of reacting too hastily to suppress inflation just because the Fed responded too late previously, stating the central bank must avoid fighting the last war.
