It is a good time for the Federal Reserve to “front-load” interest rate hikes because the economy is strong enough to keep growing despite higher borrowing costs, said Fed Gov. Christopher Waller on Tuesday.
“This is the time to hit it. You want to do this when the economy is strong,” Waller said while speaking at the Minneapolis Fed.
Waller said that if the Fed put off rate hikes, the economy might get softer and the unemployment rate might ticking up.
“From my view, do it now, front-load it, get it done, Waller said, and then we can can judge how the economy is proceeding,” he said.
The Fed knows the damage that can happen if it doesn’t take it seriously to bring inflation down, he added.
Waller said the Fed is shooting for a soft landing, where growth can continue despite the central bank hiking interest rates.
Waller said too many people are thinking back for former Fed Chairman Paul Volcker and the early 1980s, when the Fed engineered a steep recession to tame inflation.
The difference between today and the Volcker era is that inflation was out of control for almost a decade, Waller said.
This time, inflation has barely been rising for a year “and we’re on it already and we’re not backing off,” Waller said.
Several Fed officials have spoken Tuesday. Themes that has emerged is confidence that the economy can avoid a recession coupled with a determination to raise interest rates by a half-a-percentage point at the next two policy meetings which would bring the Fed’s policy rate up to 1.75%-2% by August.
Stocks have been on a rollercoaster ride Tuesday. The tech heaving Nasdaq index
is up almost 2% in midafternoon trading. The yield on the 10-year Treasury note
slipped below 3% in volatile trading.