Fed governor wants another big interest rate hike for 'all in' inflation fight

Federal Reserve Governor Christopher Waller on Saturday became the latest U.S. central banker to pledge a whatever-it-takes approach to fighting inflation, three days after the Fed raised interest rates by three-quarters of a percentage point and signaled more hikes to come.

"If the data comes in as I expect, I will support a similar-sized move at our July meeting," Waller said in remarks prepared for delivery to a Society for Computational Economics conference in Dallas. "The Fed is 'all in' on re-establishing price stability."

Waller was one of the Fed's earliest advocates for a faster pivot away from the ultra-easy monetary policy embraced during the coronavirus pandemic, urging a start to the process back in August, when the Fed's target policy rate was pinned near zero and it was buying $120 billion in bonds each month to support the economy.

Though the Fed began to back away from its policy accommodation late last year, it wasn't until March that it phased out its asset purchases and started raising interest rates to stem what is now the highest inflation in 40 years.

Waller's hawkish views currently reflect the central bank's core conviction that rapid policy tightening is needed, even at the risk of causing a downturn that many say is increasingly likely.

On Friday, the Fed called its fight against inflation "unconditional," and Atlanta Fed President Raphael Bostic, who had been the Fed's most dovish policymaker, declared "we'll do whatever it takes" to bring inflation back down to the Fed's 2% target.

Inflation, as measured by the Personal Consumption Expenditures Price Index, is running at more than three times that level.

The Fed's rate hike on Wednesday, its biggest increase in more than a quarter of a century, lifted its target for the benchmark overnight lending rate to a range of 1.50%-1.75%.

Policymaker forecasts show most of Waller's colleagues at the Fed now expect that rate to rise to at least 3.4% in the next six months. A year ago most thought it would need to stay at zero until 2023.

Some critics blame the Fed's delay in tightening policy on a framework it adopted in 2020 that ruled out raising interest rates in response to falling unemployment, as the Fed had previously done even if actual inflation readings remained low.

Waller argued on Saturday that it was the Fed's overly specific promises about when it would end its asset purchases that were at fault.

Structural changes to the economy mean there is a "decent chance" the Fed will in the future need to again slash its policy rate to zero and buy bonds to fight even a typical recession, he said.

He said he would support next time less restrictive promises around the end of bond purchases and more clarity around not just when the Fed would start to tighten policy but also how fast.

(Reporting by Ann Saphir; Editing by Paul Simao)