Christopher Waller, Speech: The Economic Outlook with a Look at the Housing Market
“Expectations are for job gains of around 260,000, which would be lower than recent months but very healthy relative to past experience. A jobs number in this range along with the job openings rate reported on Tuesday would show that the labor market is slowing a bit but is still quite tight. As a result, I don’t expect tomorrow’s jobs report to alter my view that we should be focused 100 percent on reducing inflation.”
“As we think about policy actions for the remainder of the year, one can look at the Summary of Economic Projections released by the FOMC at our meeting last month. These projections showed participants expected an additional 100 to 125 basis points of tightening by the end of the year, which means either a couple of 50 basis point hikes at our remaining two meetings, or 75 basis points in November and 50 basis points in December. Of course, the exact path for policy will depend on the data we receive between now and the end of the year.”
”Before the next meeting on November 1–2, there is not going to be a lot of new data to cause a big adjustment to how I see inflation, employment, and the rest of the economy holding up. We will get September payroll employment data tomorrow, and CPI and PCE inflation reports later this month. I don’t think that this extent of data is likely to be sufficient to significantly alter my view of the economy, and I expect most policymakers will feel the same way. I imagine we will have a very thoughtful discussion about the pace of tightening at our next meeting.”
“In considering what might happen to alter my expectations about the path of policy, I’ve read some speculation recently that financial stability concerns could possibly lead the FOMC to slow rate increases or halt them earlier than expected. Let me be clear that this is not something I’m considering or believe to be a very likely development … I am a little confused about this speculation. While there has been some increased volatility and liquidity strains in financial markets lately, overall, I believe markets are operating effectively. Actions by banks and financial regulators in recent years have greatly strengthened the financial system. Banks are well capitalized. Functioning in the Treasury, equity, and commodity markets remains orderly.”
“One factor that is likely helping to stabilize the financial system is the existence of monetary policy tools which could serve as a backup source of liquidity in times of financial stress. For example, swap lines that the Fed maintains with other central banks have been used effectively in the past to relieve stress in the financial system, and I think the availability of these facilities tend to be a stabilizing force at other times. In addition, to help implement monetary policy, the Fed established new standing repurchase agreement (repo) facilities in July 2021, one for domestic counterparties and another for foreign and international monetary authorities. These facilities are capable of responding to strains that may put upward pressure on money market rates, but I think it is likely that their mere existence has been a stabilizing force. Along with the improved regulatory framework, I believe we have tools in place to address any financial stability concerns and should not be looking to monetary policy for this purpose. The focus of monetary policy needs to be fighting inflation.”