As energy shocks stemming from the Iran conflict drive up prices, Federal Reserve Governor Christopher Waller stated that he supports making it clear the Fed's next move is as likely to be a rate hike as a cut.
Waller indicated that his current stance is to patiently hold rates steady until the impact of the conflict becomes clearer. However, he warned on Friday that if inflation does not begin to slow soon, he would not rule out the possibility of future rate increases.
"Inflation is not moving in the right direction," he said during a speech titled "Policy Risks Have Changed" at a conference in Frankfurt. "I support removing the 'easing bias' language from our policy statement to clearly indicate that the likelihood of future rate cuts is not greater than that of rate hikes."
Waller noted that oil price shocks could fade quickly but added, "If inflation does not ease promptly, I would no longer rule out the possibility of raising rates later."
The Federal Open Market Committee decided at its April policy meeting to keep the federal funds rate target range unchanged at 3.5% to 3.75%. However, three policymakers dissented, dissatisfied with the so-called "easing bias" wording in the post-meeting statement, which they viewed as suggesting the Fed would eventually resume rate cuts.
Waller sees the labor market as stabilizing but not overheating and stated that he believes the current Fed benchmark rate is restrictive for the U.S. economy.
Nevertheless, he said the larger determinant of current policy is the inflation outlook, which depends on how long the conflict ultimately lasts.
"If I believed inflation expectations were beginning to become unanchored, I would not hesitate to support raising the target range for the federal funds rate," Waller said. "But it is premature to take that action now. This is a time to watch how the conflict and data evolve."
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