Federal Reserve Governors Offer Divergent Views on Inflation
Federal Reserve Governor Christopher Waller expressed optimism on Tuesday that the central bank’s current policy stance is well positioned to bring inflation back under control. However, his colleague, Governor Michelle Bowman, offered a contrasting view and reiterated her belief that more rate hikes will likely be needed.
In a speech in Washington, D.C., Waller said that though inflation is still too high at the moment, he is increasingly confident that current policy measures will be effective in slowing the economy and bringing inflation back to the Fed’s target rate of 2 percent. He pointed to early signs of moderating economic activity in the fourth quarter as a positive indicator.
Waller has been perceived as a more hawkish member of the Federal Reserve, favoring tighter policy and higher interest rates. However, he highlighted that “something appears to be giving” in the pace of the economy, referencing a moderation in retail sales, the labor market, and manufacturing activity.
On the other hand, Governor Michelle Bowman expressed her belief that more rate hikes will likely be needed to keep policy restrictive enough to bring inflation down to the 2 percent target. She cited factors such as limitations on further improvements in labor force participation, disruptions to education, and the possibility of a switch back to heavy services consumption, which could all contribute to keeping inflation elevated.
Upcoming FOMC Meeting
The comments from the two governors come just two weeks before the Federal Open Market Committee’s policy meeting. While markets expect the committee to hold steady on its key lending rate, Fed officials have emphasized the importance of remaining vigilant on inflation.
Waller also mentioned that the recent easing in supply chain pressures and inflation gauges, such as the consumer price index, are positive signs, but emphasized that monetary policy will have to do the work going forward to bring inflation back down to the target rate.
Waller said that he will be closely watching upcoming data points, including the report on inflation measured by personal consumption expenditures, to gauge the trajectory of inflation.
While Waller and Bowman’s views on inflation differ, it remains to be seen how the Federal Reserve will navigate its monetary policy in response to evolving economic dynamics. The central bank’s ongoing battle against inflation will likely continue to be a focal point in the upcoming policy meetings.