Fed’s Waller sees no signs of a ‘rapid’ decline in inflation

The inflation looks set to slow further this year, but the central bank’s battle to reach its 2% target “could be a long fight” if monetary policy remains tighter for longer than expected, the governor of the Federal ReserveChristopher Waller.

“There are signs that food, energy and housing prices will moderate this year”Waller said Wednesday at an Arkansas State University conference, noting that the Fed’s rapid interest rate hikes had begun to “bear its fruits”.

“But I see no signs of (…) a rapid decline in economic data, and I am prepared for a longer fight”Waller said.

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The surprisingly strong job gain with 517,000 new jobs in January showed the economy was holding up well, Waller said, but it also means “Labor income will also be robust and will boost consumer spending, which could keep upward pressure on inflation in the coming months.”

Although wage growth has slowed, the decline “is not sufficient”Waller said. “The Federal Reserve will have to maintain a tight monetary policy for some time.”

Waller did not say in his prepared remarks how much more the Fed will have to raise its benchmark overnight interest rate to reach a level suitable for bringing inflation back to the 2% target. In December, the Fed’s preferred inflation rate was rising at an annual rate of 5%.

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Fed projections released in December showed that policymakers expected the Fed interest rate to rise to as high as 5.00%-5.25% this year, from the current range of 4 .50%-4.75%.

Waller has been a supporter of more aggressive rate hikes, but supported the central bank’s decision to start raising rates in quarter-point increments from its meeting earlier this month.

“Although we have made progress in reducing inflation, I want to make it clear today that the job is not done”Waller said.

Source: Reuters