Fed needs to keep raising interest rates, Waller says

By Greg Robb

Still unclear to what extent the stress in the banking system will weigh on activity, Fed Governor says

The Federal Reserve needs to continue raising interest rates because inflation is "still much too high," Fed Governor Christopher Waller said Friday.

Waller said there is still no sign that banks are pulling back lending, which would slow the economy. He said his views on the outlook were "about the same place" as he was at the last interest-rate meeting in mid-March.

"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, in a speech at a conference in San Antonio, Texas.

Waller called the March CPI report "mixed news" and said the Fed hasn't made much progress on its inflation goal.

He noted that core consumer prices, excluding volatile food and energy prices, have risen by 0.4% or higher for the fourth month in a row.

Waller noted that there are still more than two weeks until the next FOMC meeting on May 2-3 and he said he was ready to adjust his stance based on the data, including what is learned about lending conditions.

"I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our 2 percent target, I believe there is still work to do," Waller said.

Looking ahead, the Fed will need to keep interest rates at a high level "for a substantial period of time and longer than the market anticipates."

Financial markers expect the central bank to cut rates before the end of the year.

In a separate interview with Reuters, Atlanta Fed President Raphael Bostic said he favored one more 25 basis points hike to end its tightening cycle., a policy he called "hit and hold."

Krishna Guha, vice chairman of Evercore ISI, said he thought this policy was the central tendency of the Fed's interest-rate committee. It was less perhaps than Waller wants to do, he noted.

Chicago Fed President Austan Goolsbee continued Friday to sound cautious about more rate hikes, noting that prior rate hikes still have to work through the economy.

Stocks were broadly lower on Friday. The yield on the 10-year Treasury note rose to 3.52%.

-Greg Robb

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04-14-23 1159ET

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