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Fed Governor Waller Concurs on the Need for a Cautious Approach to Interest Rates

Federal Reserve Governor Christopher Waller expressed that the recent strong economic data will provide the central bank with some leeway in deciding whether to implement further interest rate hikes to combat inflation. Waller referred to the positive data as a “hell of a good week” and emphasized that it allows the Fed to proceed cautiously, observing how the situation unfolds. One significant data point was the August nonfarm payrolls report, which indicated better-than-expected job growth of 187,000, along with a modest 0.2% increase in average hourly earnings, lower than expected. Earlier reports also showed the Fed’s preferred inflation gauge rising just 0.2% in July and a decline in job openings, a measure of labor market tightness. Waller highlighted that the primary concern is inflation and welcomed the consecutive positive reports, emphasizing the need to determine whether the lower inflation is a trend or an anomaly.

Waller, often seen as a more hawkish member of the Federal Open Market Committee, emphasized the importance of data in deciding the course of rate increases. He noted that the Fed has been cautious in the past when assessing inflation trends, mentioning instances when inflation appeared to be decreasing but then surged. While markets indicate a high probability that the Fed will hold off on a rate increase at its September 19-20 meeting, there is a 43.5% likelihood of an increase at the October 31-November 1 session, suggesting some uncertainty in future monetary policy. Waller’s remarks align with recent comments from Fed Chair Jerome Powell, who stated that inflation remains elevated and may necessitate further rate hikes but emphasized a cautious approach. Waller believes that even one more rate hike would not necessarily harm the job market or push the economy into a recession, emphasizing the need for prudence in assessing the inflation trajectory before making any definitive decisions.

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