Top Fed official signals interest rates to stay on hold at September meeting

A top official at the Federal Reserve signalled that the US central bank was preparing to hold its benchmark interest rate steady at its September policy meeting, saying recent economic data did not necessitate anything “imminent” in terms of further monetary tightening.

Christopher Waller — among the most hawkish members of the Federal Open Market Committee and who casts a vote at every policy meeting — said on Tuesday that the Fed was well-positioned to proceed “carefully” in terms of further monetary tightening following what he described as a “helluva good week of data”.

“There’s nothing that is saying we need to do anything imminent anytime soon, so we can just sit there, wait for the data and see if things continue,” he told CNBC in an interview. 

The comments — which echoed the message sent by Fed chair Jay Powell at the central bank’s annual symposium in Jackson Hole, Wyoming, last month — come on the heels of two labour market reports, which confirmed that demand for workers, while still strong, was continuing to moderate across the world’s largest economy.

Having raised its benchmark interest rate by more than 5 percentage points since March 2022, the Fed is now seeing more credible signs that inflation is trending back down to its longstanding 2 per cent target, even if the deceleration has been — and will probably continue to be — bumpy.

Among data released last week, the Fed’s preferred inflation gauge — the core personal consumption expenditures index — registered an annual increase of 4.2 per cent in July. The federal funds rate, meanwhile, hovers between 5.25 per cent and 5.5 per cent.

Waller said he was highly attuned to incoming inflation data. While there had so far been back-to-back months of “good reports”, he said it was still an open question whether the ongoing moderation was a “trend” or just a “fluke”.

“We’ve been burnt twice before,” he said, noting declines in price pressures in 2021 that reversed course the year after. “I want to be very careful about saying we’ve kind of done the job in inflation until we see a couple of months continuing along this trajectory”.

Future inflation reports that indicated consumer prices were rising at a monthly pace of only 0.2 per cent would suggest the Fed was in “pretty good condition”.

As of June, most officials forecast the fed funds rate peaking at between 5.5 per cent and 5.75 per cent this year, suggesting one more quarter-point rate rise. Most economists and market participants believe the Fed is already finished with that rate-rising phase of its tightening cycle, even as officials keep the door ajar to further action.

Powell and other policymakers have warned that if economic growth continues to be stronger than expected, it could well necessitate additional tightening.

Waller on Tuesday pushed back on the prospect that further lowering inflation will necessitate outsized job losses and risk a recession. He said the recent data affirmed the odds of a so-called soft landing.

“It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time.”