Fed's Waller warns inflation fight isn't around; interest prices will 'keep going up' despite costs cooling by more than anticipated

September 6, 2023: On Friday, Fed’s Waller warns that the inflation fight isn’t around, and interest prices will ‘keep going up’ despite costs cooling by more than anticipated.

“That was a nightmare of a fine week of data we got in the previous week, and the key thing out, if it is, will let us proceed carefully,” Waller said.

Friday’s nonfarm payrolls report highlighted those data issues, which showed better-than-anticipated growth of 187,000 jobs in August, while average hourly earnings rose just 0.2% for the month, lower than predicted.

Earlier in the week, other reports showed that the Fed’s preferred inflation gauge increased only 0.2% in July and that job openings, a critical labor market tightness, dropped to their lowest level since March 2021.

“The biggest thing is just inflation,” Waller stated. “We got two good reports in a row.” The key is to “see whether this low inflation is a trend or if it was just an outlier or a fluke.”

Waller is generally regarded as one of the more hawkish members of the rate-setting Federal Open Market Committee. He has favored tighter monetary policy and higher interest rates as the central bank battles inflation that, in the summer of 2022, was running at its highest speed in more than 40 years.

While he was prompted by the recent reports on where prices are trending, he said they even indicate that the Fed can afford to hold rates higher until it is sure inflation is on the run.

“That depends on the data,” Waller said when asked whether the rate increases can stop.

“We have to wait and see if this inflation trend is continuing. We’ve been burned twice before.

In 2021, we noticed it coming down, and then it shot up. The end of 2022, we saw it reaching down, then it all got revised away.”

“So, I want to be very careful about saying we’ve kind of done the job on inflation until we visit a couple of months continuing along this trajectory before I say we’re done doing anything,” he added.

“I don’t think one more hike would necessarily pitch the economy into recession if we did feel that we needed to do one,” Waller said. “It’s not obvious that we’re in danger of doing a lot of harm to the job market, even if we raise rates again.”