Fed Governor Waller Says Inflation Risks Are Greater, Hints at Prolonged Rate Hold

[The Financial News, New York City = Lee Byung-chul]Signals are emerging within the Federal Reserve System (Fed) that are dampening expectations for an interest rate cut. Concerns that inflationary pressure could last longer than expected, along with a labor market that appears stable on the surface but remains fragile underneath, are making monetary policy decisions even more complicated.
In a speech in Alabama on the 17th local time, Fed Governor Christopher Waller said, "The current economic situation is making policy decisions very difficult." He added, "When high inflation and a weak labor market appear at the same time, it creates a very complex environment for policymakers."
He also suggested that the Fed could keep rates unchanged for an extended period. Waller said, "We can keep the policy rate within the current target range until the direction of the economy becomes clearer," and emphasized, "If inflation risks are greater than labor market risks, holding rates steady may be appropriate."
The remarks came as markets are already pricing in a base case in which the Fed keeps rates unchanged this year, and they are expected to add to policy uncertainty.
Waller also offered a somewhat revised view of the labor market. Until recently, he had expressed concern about weak job growth, but he said the idea that the minimum job growth needed to keep unemployment stable could effectively be close to zero is now gaining traction.
Still, he said this looks more like endurance than stability. "Companies are trying to maintain a delicate balance between the labor shortages they faced in the past and concerns about a future economic slowdown," he said. "It is a fragile structure that could lead to job cuts even from a small shock."
Waller has long been seen as one of the Fed's more dovish voices on rate cuts, but in March he also shifted his stance by voting to keep the benchmark rate unchanged in the 3.5% to 3.75% range.
On inflation, he also took a relatively hawkish view within the Fed.
"I find it hard to agree with the optimism that the shock from war will be short-lived," Waller said. "After the price increases caused by tariffs, this new shock could add another layer, raising the possibility of a chain of price increases similar to what we saw during the pandemic."
That warning is being interpreted as a sign that inflationary pressure could become structural rather than merely temporary.
\r\n
\r\n\r\n
\r\n
pride@fnnews.com Lee Byung-chul Reporter