Christopher Waller, Speech: A Case for Cautious Optimism

Speech

Fed Funds

“And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favor a 25-basis point increase at the FOMC’s next meeting at the end of this month. Beyond that, we still have a considerable way to go toward our 2 percent inflation goal, and I expect to support continued tightening of monetary policy.”

Post Speech Interview

Inflation

“Inflation is not going to just miraculously melt away. It’s going to be a slower, harder slog to get inflation down and therefore, we have to keep rates higher for longer and not start cutting rates by the end of the year. The other issue that we have to deal with, that the markets know, is we have, from a risk management point of view, we have to ensure that inflation doesn’t take back off and that means we’re going to have to keep rates higher for longer than we normally would say we would do from a Taylor Rule or some policy rule because of a risk management side.”

Pause

“Look, I would say if you look at the SEP, we’re talking about maybe 75 more basis points of hikes to get to the terminal point. That means you’re going to pause at some point in the first half of the year if it just carried straight out and you hit exactly your target. So the argument is just whether you should pause after three months of data or pause after six months of data. From the risk management side, I’m going to lean towards I need six months of data and not just three.”

Recession

“Like I said, I’ve been fairly optimistic about the soft landing story and so far, it seems to be holding up but there’s always a recession risk. I mean, I’m on the… Everybody thinks we’re going to have a recession and I think we can just slow growth and it will achieve the same thing, we don’t necessarily have to go into recession. Even those I talked to say it’s a recession, I don’t hear anybody thinking it’s going to be severe. It’s going to be mild and pretty short-lived. So that’s the good news about all this is we can bring inflation down and the worse it happens is you have a mild, short recession. That’s not too bad.”

Monetary Policy Lags

“So I don’t think there’s a straight answer for like… It’s always 12 months to 18 months. I think it’s much shorter now myself. I think it tends to be 9 to 12 months. So I think we’re seeing a lot of the impact for monetary policy coming through in the next quarter.”