Fed Official Signals Flexibility on Future Rate Hikes

Federal Reserve Governor Christopher J. Waller indicated that the central bank has flexibility on the timing of additional interest rate increases as officials continue efforts to return inflation to its 2 percent target, according to a speech in Istanbul and reports from The New York Times.

Waller said the Fed still needs further policy tightening after inflation remained above its target for nearly six years. He supported more increases but did not signal an immediate move at the next meeting.

"If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2 percent goal," said Christopher J. Waller, Federal Reserve governor.

Waller added that the pace of future increases could depend on incoming economic information. His remarks followed other Fed officials who suggested the central bank could delay another move after a September rate increase.

"But there is some flexibility about when those hikes will occur," said Christopher J. Waller, Federal Reserve governor.

The governor said future rate increases would not necessarily happen at every policy gathering. The Fed had raised rates by a quarter percentage point at its September meeting, bringing the target range to between 3.75 percent and 4 percent, according to meeting records.

"They do not need to come at consecutive meetings, but they should be in place in an acceptable period of time," said Christopher J. Waller, Federal Reserve governor.

Fed meeting minutes from the September 15-16 Federal Open Market Committee meeting also showed concerns about possible stress in Treasury markets. Several officials discussed preparing tools and communication strategies while limiting the central bank's market role.

"Regarding balance sheet policy, a few participants observed that Treasury markets had been functioning smoothly but noted the importance of planning for market stress," according to the Federal Reserve meeting minutes.

The minutes said some officials wanted stronger preparations if market conditions worsened. The discussion came as government bond yields climbed and affected borrowing costs, including mortgage rates.

"Suggested strengthening the Federal Reserve's strategy, communications, and tools for addressing market dysfunction, should it occur, while limiting the Federal Reserve's footprint in the Treasury market," according to the Federal Reserve meeting minutes.

The Fed's policy shift has increased attention on its balance sheet approach under Chairman Kevin M. Warsh, who has opposed large holdings and appointed a task force to examine ways to reduce them.

"Sounds like an oblique way to draw a line in the sand and signal to the market and the White House that the Fed's thinking has not changed: It would intervene only if policy transmission is threatened, not simply because yields are rising rapidly," said Derek Tang, an analyst at Monetary Policy Analytics, Inc.