By Michael S. Derby
(Reuters) -Federal Reserve Governor Christopher Waller said on Tuesday the latest round of economic data was giving the U.S. central bank space to see if it needs to raise interest rates again, while noting that he currently sees nothing that would force a move toward boosting the cost of short-term borrowing again.
Recent economic news is "going to allow us to proceed carefully," Waller said in an interview with CNBC, adding that "there's nothing that is saying we need to do anything imminent anytime soon, so we can just sit there, wait for the data, see if things continue" on their current trajectory.
On Friday the U.S. Labor Department reported that the economy continued to gain jobs at a solid clip in August even as the unemployment rate shot up to 3.8% from 3.5% in July. That data was released during a week where there was fresh news on inflation, as markets continue to debate the need for more monetary policy tightening to tame inflation.
In recent days Fed officials have said that while inflation is still too high, it is coming down, and they have said that any move to lift the range for the benchmark overnight interest rate depends on the data. The Fed last raised rates in late July, pushing its policy rate to the 5.25%-5.50% range. It has raised that rate from the near-zero level since March 2022.
Financial markets believe the Fed is done raising rates. Futures tied to the central bank's policy rate show only a slight chance of a hike at the Sept. 19-20 meeting and about a 40% probability of one at the last two meetings of the year, according to CME Group's (NASDAQ:CME) FedWatch Tool.
But Waller cautioned against making such an assumption, noting that the Fed has been burned before by data that appeared to show an improvement on the inflation front only to see price pressures come in stronger than expected.
Whether interest rates go up again "depends on the data. I mean, we have to wait and see if this inflation trend is continuing," Waller said. "I want to be very careful about saying we've kind of done the job," adding that he wants to see "a couple of months continuing along this trajectory before I say we're done doing anything."
BOND MARKET
Waller also noted that another rate rise, if needed, would not cause much damage to the labor market. While the unemployment rate has risen and there is evidence of a softer jobs market, hiring is still historically strong, "so it's not obvious that we're in real danger of doing a lot of damage to the job market even if we raise rates one more time," he said.
Waller brushed off a jump in bond market yields that will lead to higher headwinds for U.S. economic growth. Instead, he saw the increase as a hand-in-hand move with Fed policy actions.
"I think the Treasury yields are probably about where they should be," Waller said. The Fed wants higher market rates, and in terms of what's been seen in the government bond market, "they're not going off the charts, certainly compared to where we have the policy rate."
Waller also said the Fed was watching the commercial real estate sector for risks amid a shift in how office workers spend their time, but he said he doesn't see much evidence that challenges in that sector could damage the broader economy.