(Bloomberg) -- Federal Reserve Governor Christopher Waller said he favored more monetary policy tightening to reduce persistently high inflation, although he said he was prepared to adjust his stance if needed if credit tightens more than expected.
“Because financial conditions have not significantly tightened, the labor market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further,” Waller said Friday in a speech in San Antonio, Texas. “How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions.”
Policymakers have penciled in one additional quarter-point hike this year, and markets are pricing in the likelihood of a final rate increase on May 3. While inflation reports this week have shown some signs of easing price pressures, most Fed officials who have spoken have highlighted the need to do more to return price gains to their 2% target.
“I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our 2% target, I believe there is still work to do,” Waller said.
The Fed governor said he took no comfort in this week’s consumer price report showing inflation dropping to 5% as he focused on core inflation, excluding food and energy, which has shown little progress.
“I interpret these data as indicating that we haven’t made much progress on our inflation goal, which leaves me at about the same place on the economic outlook that I was at the last FOMC meeting, and on the same path for monetary policy,” he said.
Fed officials lifted interest rates by a quarter percentage point last month, bringing their policy benchmark to a target range of 4.75% to 5%, up from near zero a year earlier.
Bank Stresses
A string of bank collapses last month has added new uncertainty to the outlook this year. Waller said he viewed bank stresses as easing, though he also said he wasn’t sure how much credit tightening would result from the troubles.
“All else equal, a significant tightening of credit conditions could obviate the need for some additional monetary policy tightening, but making such a judgment is difficult, especially in real time,” Waller said.
The Fed governor repeated his view that monetary policy will need to remain tight “for a substantial period of time, and longer than markets anticipate,” but also cautioned uncertainty is high.
“There are still more than two weeks until the next FOMC meeting, and I stand ready to adjust my stance based on what we learn about the economy, including about lending conditions,” he said.
His prepared remarks were shared before release of Friday’s retail sales data.
Waller’s comments come amid some increasing signs of differences of opinion by policymakers, amid the central bank’s staff forecast of a mild recession, according to minutes released of the last meeting, with bank failures contributing to a credit tightening.
While Fed officials have been largely united behind the most aggressive tightening in four decades, some Fed leaders have started to suggest they are favoring going slower in taking actions. San Francisco Fed President Mary Daly said the economy may be able to slow enough on its own.
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