Federal Reserve Governor Christopher Waller said Friday he favors a quarter percentage point interest rate increase at the next meeting as he waits for more evidence that inflation is heading in the right direction. The central bank official confirmed market expectations during a Council on Foreign Relations event in New York that the Fed could dial down on the size of its rate hikes. But he also said it’s not time to declare victory on inflation, comparing monetary policy to an airplane that soared higher quickly and now is ready for a gradual descent. “And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favor a 25-basis point increase at the FOMC’s next meeting at the end of this month,” Waller said in prepared remarks. “Beyond that, we still have a considerable way to go toward our 2 percent inflation goal, and I expect to support continued tightening of monetary policy.”
He did not specify how high he sees rates heading and was scheduled to participate in a question-and-answer session following the 1 p.m. ET speech. Other officials, such as Philadelphia Fed President Patrick Harker, have pointed to a 0.25 percentage point increase at the Jan. 31-Feb. 1 FOMC meeting. Still, Waller is the highest-ranking member to be that explicit. While the market and the Fed are on the same page with where rates go in the short term, there is divergence further out. Central bankers have said they see rates holding at a high level through the end of the year, while markets see a peak in the summer and a reduction shortly after that. Waller said the divergence is largely about the perception of where inflation will go.