Fed's Waller sounds 'hawkish' note on outlook for rates

A top US central bank official said he could support a further 25 basis point interest rate hike at the 13-14 June policy meeting, depending on how the economic data came in between now and then.

Indeed, in a speech posted to the Federal Reserve's website, governor Christoper Waller said that with the economic data that policymakers now had in hand "we are not making much progress on inflation".

Waller pointed out that the core Consumer Price Index was only a "bit down" versus a year ago, having fallen from 6.0% to 5.5%.

And in particular, core goods prices weren´t slowing or retreating as much as was needed to bring headline CPI back down to the 2.0% target, he said.

Furthermore, in his judgement the rebound in the housing market called into question for how long rent increases would continue slowing with everything that meant for housing services prices.

He also believed that growth in average hourly earnings needed to slow from 4.4% year-on-year to "a lot closer" to 3%.

As an aside, the day before, former Fed president, Ben Bernanke, and ex-International Monetary Fund chief economist, Olivier Blanchard, published a paper in which they concluded that central bankers still had more work to do tame inflation.

All told, Waller did not expect the economic data due out by mid-June to leave clear if the Fed should stop hiking rates altogether.

Whether to skip a rate hike at the next policy meeting on the other hand would depend on that data, which would include the non-farm payrolls and consumer price reports for May.

The distinction made by Waller between stopping hikes or skipping a rate hike reflected Fed officials' wariness over the recent increase in speculation that the central bank was done with hikes.

To make that point, apparently, Waller said: "And I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective."

He added that until mid-June he would also be evaluating the data on credit conditions in the wake of Silicon Valley Bank's failure to see how they were tightening.

Concern about the possible tightening in credit conditions might justify skipping a hike in June too.

Indeed, by July's Fed meeting he expected to have a "much clearer idea" about credit conditions, he said.

"We worked very hard over the past year to quickly raise the target range for the federal funds rate from near zero to about 5 percent.

"While we are seeing some tentative signs of cooling in the labor market, I am determined to continue to use our policy tools as needed to appropriately bring inflation down to 2 percent."