Fed Governor Christopher Waller warns that interest rates could go higher than expectations

Federal Reserve Governor Christopher Waller on Wednesday talked tough on inflation, warning that the fight is not over and could result in higher interest rates than markets are anticipating.

Speaking to an agribusiness conference in Arkansas, Waller said the January jobs report, showing nonfarm payroll growth of 517,000, indicated that the employment market is “robust” and could fuel consumer spending that would maintain upward pressure on inflation.

Consequently, he said the Fed needs to maintain its current plan of action, which has seen eight interest rate hikes since March 2022.

“We are seeing that effort begin to pay off, but we have farther to go,” Waller told the Arkansas State University Agribusiness Conference in prepared remarks. “And, it might be a long fight, with interest rates higher for longer than some are currently expecting. But I will not hesitate to do what is needed to get my job done.”

The comments come a week after the rate-setting Federal Open Market Committee approved a quarter percentage point increase that took the benchmark borrowing rate to a target range of 4.5%-4.7%, the highest since October 2007.

Markets have been taking some encouragement off recent remarks from Fed Chairman Jerome Powell, who has said that he is seeing disinflationary signs. Inflation hit a 41-year peak last summer, forcing the Fed off its insistence that the price increases were “transitory” and into the current tightening posture.

But Waller said he sees inflation still too high while he expects just moderate economic growth this year. He did note that wage data is “moving in the right direction,” but not enough for the Fed to lower rates.

“Some believe that inflation will come down quite quickly this year,” he said. “That would be a welcome outcome. But I’m not seeing signals of this quick decline in the economic data, and I am prepared for a longer fight to get inflation down to our target.”

Markets currently expect the Fed to approve two more rate increases — a quarter-point each at the March and May meetings, according to CME Group data. They then expect a quarter-point cut by the end of the year as the economy slows and possibly drifts into recession.

Waller did not specify his view on where rates are headed, saying only he sees tight monetary policy lasting “for some time,” a phrase used repeatedly by Powell and other Fed officials.