(Bloomberg) -- Federal Reserve officials backed expectations they will moderate interest-rate increases to 50 basis points next month, while stressing the need to keep hiking into 2023.
In a speech on Wednesday, Governor Christopher Waller said his final decision on the size of the appropriate move next month will hinge on data. He also left the door open to a sequence of half percentage-point increases if needed to curb high inflation.
“The data of the past few weeks have made me more comfortable considering stepping down to a 50 basis-point hike,” Waller said at an event in Phoenix. “But I won’t be making a judgment about that until I see more data.”
Waller, one of the more hawkish Fed officials, was the latest policymaker to suggest it could be time to downshift the pace of the Fed’s tightening campaign.
Last week’s consumer price index report showed a softening in core consumer goods inflation, but officials have stressed that they need to see this trend continue, a sentiment that Waller echoed.
“I cannot emphasize enough that one report does not make a trend,” he said. “It is way too early to conclude that inflation is headed sustainably down.”
The Fed raised its benchmark interest rate by 75 basis points on Nov. 2 for the fourth straight time, lifting the target range to 3.75% to 4% from near zero in March.
Waller said he sees a “stronger” case for using smaller rate increases, such as a 50 basis-point move or a 25 basis-point hike, as rates get higher.
“I expect that getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year,” he said. “We still have a ways to go.”
Looking beyond the Fed’s December meeting, Waller said that the incoming data could warrant a shallow angle of ascent for policy involving a step down to 25 basis-point increases.
“Or maybe it could be necessary to continue climbing a little longer to a higher final attitude by implementing a sequence of 50 basis-point hikes,” he said.
Like other officials, Waller said the peak in the tightening cycle will be determined by incoming economic data.
Investors expect it will raise by a half point at its Dec. 13-14 meeting, with rates peaking around 4.9% in mid-2023.
San Francisco Fed President Mary Daly, in in interview earlier Wednesday on CNBC, said she saw the Fed hiking into a range of somewhere between 4.75% and 5.25%.
Daly said that while the strategy is to raise rates and then hold for a time, that did not mean they were close to ending their tightening campaign.
“Pausing is off the table right now, it’s not even part of the discussion,” she said. “Right now the discussion is, rightly, in slowing the pace.”
The unemployment rate may need to rise to around 4.5% to 5% to bring down wage growth and inflation, Daly said. The jobless rate rose slightly to 3.7% in October but remains near a 50-year low.
New York Fed President John Williams, speaking earlier on Wednesday at a Treasury market conference hosted by his bank, also stressed the necessity to defeat high inflation.
“Restoring price stability is of paramount importance because it is the foundation of sustained economic and financial stability,” he said. “Price stability is not an either/or, it’s a must have.”
©2022 Bloomberg L.P.
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