Top Fed official endorses ending string of supersized rate rises

A top official at the Federal Reserve said the US central bank should continue to use its monetary policy tools “aggressively” to reduce inflation, even as he tentatively endorsed an end to the string of supersized rate rises the Fed has been implementing since June.

Christopher Waller, a governor on the Federal Open Market Committee, on Wednesday said he is now “more comfortable” with considering reducing the pace of monetary tightening next month from the rapid 0.75 percentage point clip of the past four meetings.

Waller, who spoke at an event in Arizona, is not alone in laying the groundwork for a half-point rate rise in December, with a growing cohort of other officials also backing the move.

Despite endorsing a slower pace, the Fed governor — like his colleagues — emphasised that the central bank would remain aggressive in its efforts to tame inflation.

“If the FOMC were to step down to a 50-basis-point increase, it is important to remember that this would still be a very significant tightening action — in other words, just pulling back on the rate of ascent a little bit,” he said.

He added that the central bank does not yet face a “trade-off” between inflation and employment and thus should continue to be aggressive in its policy actions.

The comments came as the Fed has rapidly raised interest rates this year, with the federal funds rate hovering between 3.75 per cent and 4 per cent. According to Waller, that is “barely in restrictive territory”, meaning the Fed will have to exert considerably more effort to cool down the economy.

Changes to policy also take time to influence economic activity, and Waller noted the labour market is only beginning to show signs of softening. The pace of monthly jobs growth has slowed, the rate at which people are quitting their jobs is off of recent peaks and wage growth is plateauing.

The most recent inflation report also showed tentative signs that prices pressures are beginning to ease, but Waller expressed caution about reading too much into one data point.

“Like many others, I hope this report is the beginning of a meaningful and persistent decline in inflation,” he said. “But policymakers cannot act based on hope. I will not be head-faked by one report.”