Federal Reserve official warns of more rate hikes on ‘too hot’ data

THE US Federal Reserve may have to raise interest rates to a higher level than earlier anticipated if “data reports continue to come in too hot,” Fed Governor Christopher Waller warned on Thursday.

This comes as data released in February showed that job gains surged unexpectedly, while revised figures indicated that inflation slowed less than previously reported, he said in prepared remarks at the Mid-Size Bank Coalition of America.

“Although inflation has been coming down since the middle of last year, the recent data indicate that we haven’t made as much progress as we thought,” said Waller.

Recent numbers underscore the view “that the fight to bring inflation down to our two per cent target will be slower and longer than many had expected just a month or two ago,” he added.

Among other issues, policymakers have been concerned about wage growth, as it feeds into inflation via labour costs.

If job creation falls to “a level consistent with the downward trajectory seen late last year” and inflation pulls back significantly, Waller said, he would endorse raising the federal funds rate to a target range between 5.1 and 5.4 per cent.

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In December, Fed officials pegged the median rate at 5.1 per cent this year, a figure already higher than earlier expected.

If reports “continue to come in too hot,” the range will have to be raised even more this year, Waller said.

This is “to ensure that we do not lose the momentum that was in place before the data for January were released,” he added. AFP