Waller was an early advocate within the Fed for a faster pivot away from ultra-loose monetary policy adopted during the coronavirus pandemic, urging starting the process in August, when the Fed’s target policy rate it was pegged near zero and was buying $120 billion a month in bonds to support the economy.
Although the Fed began to back away from its accommodative monetary policy late last year, it wasn’t until March that it phased out its asset purchases and began raising interest rates to curb what is now the highest inflation in 40 years.
Waller’s hawkish views reflect the Fed’s core conviction that rapid monetary policy tightening is needed, even at the risk of causing a recession that many say is increasingly likely.
On Friday, the central bank called its fight against inflation “unconditional” and Atlanta Fed President Raphael Bostic, who had been the Fed’s most dovish official, declared that “we will do whatever it takes” to make inflation returns to the 2% target.
Inflation, measured by the Personal Consumption Expenditure Price Index, is at more than three times that level.
The rise in the cost of credit of the Fed on Wednesday, its biggest increase in more than a quarter of a century raised its benchmark interest rate target for overnight loans to a range of 1.50%-1.75%.
Forecasts from Fed officials show that most of Waller’s colleagues at the central bank now expect the rate to rise to at least 3.4% in the next six months. A year ago, most thought it would have to stay at zero until 2023.
Structural changes in the economy mean there is a “decent chance” that the Fed in the future will need to cut its policy rate back to zero and buy bonds to fight even a typical recession, he said.
