Christopher J. Waller, one of the Federal Reserve’s governors in Washington, said on Wednesday that recent economic data suggests that the central bank should raise interest rates by more than usual in May, and potentially in June and July as well.
“The data has come in exactly to support that type of policy action, if the committee decides to do so,” Mr. Waller said during a CNBC interview on Wednesday, adding that the data may justify “possibly more in June and July.”
Fed officials have coalesced around the need to “expeditiously” return policy to a neutral setting, one in which borrowing costs are neither stoking economic growth nor slowing it so much that unemployment rises, as inflation remains stubbornly rapid. Mr. Waller and other officials have made a case for making big rate increases to speed up the process, following the Fed’s decision to increase rates by a quarter of a percentage point in March.
Jerome H. Powell, the Fed chair, has signaled that a large rate increase is up for debate, and minutes from the central bank’s last meeting showed that “many” officials would have favored a large increase in March if it hadn’t been for uncertainty created by Russia’s invasion of Ukraine.
Mr. Waller suggested that even though inflation might be touching a peak — data this week showed it rising at the fastest pace since 1981, as the war in Ukraine drove gas prices higher and exacerbated already-rapid price increases — it remained “very high,” and the Fed was going to need to keep working to reduce it.
It is probably the case that “this is pretty much the peak — it’s going to start coming down,” Mr. Waller said, adding that he had forecast price increases slowing throughout the second part of the year as part of the economic projections he submitted at the Fed’s March meeting. “We’re already seeing some oil prices retreating back.”
But Mr. Waller said it was critical to lift rates up to, and even above, neutral to bring down inflation.
“Right now, our main concern is getting these prices down, and we can do that without causing a recession,” he said.
Markets have heavily penciled in big rate increases in May and June, and investors had marked up the odds of a big move in July over recent weeks.