Waller, Christopher (1959- )

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    Fed Officials Are on the Defensive as High Inflation Lingers

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    Christopher Waller, a governor at the Federal Reserve, faced an uncomfortable task on Friday night: He delivered remarks at a conference packed with leading academic economists titled, suggestively, “How Monetary Policy Got Behind the Curve and How to Get Back.”Fed officials — who set America’s monetary policy — have found themselves on the defensive in Washington, on Wall Street and within the economics profession as inflation has run at its fastest rate in 40 years. Friday’s event, at Stanford University’s Hoover Institute, was the clearest expression yet of the growing sense of skepticism around the Fed’s recent policy approach.The Fed is raising interest rates, and on Wednesday lifted them by the largest increment since 2000. But prominent economists on Friday blasted America’s central bankers for being slow to realize that inflation was going to run meaningfully higher in 2021 as big government spending goosed consumer demand. They criticized the Fed for taking monetary policy support away from the economy too haltingly once it began to react. Some suggested that it was still moving tentatively when more decisive action was warranted.Mr. Waller defended and explained the decisions the Fed made last year. Many inflation forecasters failed to predict the 2021 price burst, he noted, pointing out that the Fed pivoted toward removing policy support starting as early as September, when it became clear that inflation was a problem.“The Fed was not alone in underestimating the strength of inflation that revealed itself in late 2021,” said Mr. Waller, who expected inflation to be slightly higher than many of his colleagues. He noted that the Fed’s policy-setting committee had to coalesce around policy moves, which can take time given its size: It has 12 regional presidents and up to seven governors in Washington.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what the increases mean for consumers.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“This process may lead to more gradual changes in policy as members have to compromise in order to reach a consensus,” Mr. Waller said.Such explanations have done little to shield the Fed so far. Lawrence H. Summers, a former Harvard president and Treasury secretary, suggested earlier Friday that an economic overheating was predictable last year as the government spent heavily and that “it was reasonable to expect that the bathtub would overflow.” Kevin Warsh, a former Fed governor, called inflation “a clear and present danger to the American people,” and declared the Fed’s reaction “slow.”And even as the Fed comes under fire for responding too ploddingly as inflation pressures began to build, a new debate is evolving over how quickly — and how much — rates need to increase to catch up and wrestle fast price increases back under control.The Fed lifted interest rates half a percentage point this week and forecast more to come. Still, Jerome H. Powell, the Fed chair, said officials were not discussing an even larger, 0.75-point move — suggesting that central bankers are still hoping to control inflation without choking off growth abruptly and shocking the economy.“If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down,” Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, wrote in a post on Friday. “Neutral” refers to the policy setting that neither stokes nor slows the economy.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    How Rising Mortgage Rates Are Affecting the Housing Market

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    Mortgage costs have jumped as the Federal Reserve has raised rates. With higher rates come fewer offers.Luis Solis, a real estate agent in Portland, Ore., marked a milestone weekend late last month. It was the first time in two years that one of his listings made it to Monday without any offers.This particular house was listed at $500,000, and after a Saturday open house there were promises of at least three bids, including one for $40,000 over the asking price. Then Monday came, and there were none. Then Tuesday, and Wednesday. An offer finally came in, but instead of being 10 to 15 percent higher than the listing — something that became almost standard at the height of the coronavirus pandemic’s housing market — it was right at $500,000. And it was the only one. And the buyer took it.“We didn’t have the competing offers that would drive up the price,” Mr. Solis said. “It’s not crazy like it was.”Taking some air out of the crazed market — and the hot economy in general — is precisely what the Federal Reserve wanted to do when it raised its key interest rate in March and signaled more increases to come. Mortgage rates have surged in response, jumping to 5 percent from slightly more than 3 percent since the start of the year.That rise means the monthly payment on a $500,000 house like the one Mr. Solis just sold would be about $500 more a month than it was at the end of last year, assuming a fixed-rate mortgage and 20 percent down payment. And the higher cost comes on top of a more than 30 percent rise in home prices over the past two years, according to Zillow.Now early data and interviews across the industry suggest that many buyers have finally been exhausted by declining affordability and cutthroat competition, causing the gravity-defying pandemic housing market to start easing up.Open houses have thinned. Online searches for homes have dropped. Homebuilders, many of whom have accrued backlogs of eager buyers, say rising mortgage rates have forced them to go deeper into those waiting lists to sell each house. In a recent survey of builders, Zelman & Associates, a housing research firm, found that while builders were still seeing strong demand, cancellations had inched up, though still well below historically low levels. Builders have also grown increasingly concerned about rising mortgage rates and surging home prices.“There is a lot more concern than there had been,” said Ivy Zelman, chief executive of Zelman & Associates.By any standard that prevailed before 2020, this would be a hot real estate market. Home prices remain high, and not only is there little sign they will fall anytime soon, but many economists predict a continued rise through the year. Still, after two years of torrid demand, agents had become accustomed to fielding multiple offers for each listing and setting price records each weekend. That frenzy, brought on by pandemic migrations and the growing centrality of the home as a space where people both live and work, is now subsiding.“We’re seeing some early indications that a growing share of home buyers, especially in expensive coastal markets, are getting priced out,” said Daryl Fairweather, chief economist at Redfin.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.For buyers, however, the market will still feel plenty competitive. Even if prices aren’t rising at the pace of the past two years, homes are selling within a week of being listed and posting no significant price declines.Construction in Missoula, Mont. Among homebuilders, “there is a lot more concern than there had been,” said Ivy Zelman of Zelman & Associates.Tailyr Irvine for The New York TimesThat rising mortgage rates have not had more of an effect shows how difficult it is to tamp down prices and bring demand into balance in an economy where a lack of supply — marked by half-empty car lots, furniture order backlogs and a paucity of homes for sale — is playing a guiding role.In the prepandemic world of bustling offices and smoothly functioning supply chains, such a steep rise in mortgage rates, on top of years of double-digit price appreciation, would have economists predicting a severe drop in demand and maybe even falling prices. Those trends would have echoed through the broader economy, with fewer people spending on moving vans and new couches, and as existing homeowners felt on less solid financial footing and potentially curbed their own spending. Instead, economists are predicting that prices will continue to rise — by double digits in some forecasts — through the year.“I don’t think it’s going to stop the housing market,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.The problem is there are so few homes for sale that even a slower market is unlikely to create enough inventory to satisfy demand anytime soon. For years the United States has suffered from a chronically undersupplied housing market. Home building plunged after the Great Recession and remained at a recessionary pace long after the economy and job market had recovered. Even today, the pace of home building remains below the heights of the mid-2000s, before the 2008 financial crisis and housing market crash.This makes it a good time to be a seller — assuming you don’t need to buy. Christopher J. Waller, a governor at the Fed, is living this out.“I sold my house yesterday in St. Louis to an all-cash buyer, no inspection,” Mr. Waller said in panel discussion on Monday. “But I’m trying to buy a house in D.C., and now I’m on the other side, going: ‘This is insane.’”He noted that the sharp rise in mortgage rates over recent months should have an effect on what happens with housing.The recent lack of new building was not for lack of interest. Members of the millennial generation, now in their late 20s to early 40s, are in their prime home buying years. Their desire to buy houses and start families has collided with scant supply, leading to an increase in prices.Shutdowns in the early months of the pandemic slowed home building, but housing starts have been on an upswing lately. New home completions remain low, however, because the tight labor market and supply chain disruptions have homebuilders scrambling to find wood, dishwashers, garage doors — and workers.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    A Fed governor says the latest inflation data reaffirms the case for big rate increases.

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    Christopher J. Waller, one of the Federal Reserve’s governors in Washington, said on Wednesday that recent economic data suggests that the central bank should raise interest rates by more than usual in May, and potentially in June and July as well.“The data has come in exactly to support that type of policy action, if the committee decides to do so,” Mr. Waller said during a CNBC interview on Wednesday, adding that the data may justify “possibly more in June and July.”Fed officials have coalesced around the need to “expeditiously” return policy to a neutral setting, one in which borrowing costs are neither stoking economic growth nor slowing it so much that unemployment rises, as inflation remains stubbornly rapid. Mr. Waller and other officials have made a case for making big rate increases to speed up the process, following the Fed’s decision to increase rates by a quarter of a percentage point in March.Jerome H. Powell, the Fed chair, has signaled that a large rate increase is up for debate, and minutes from the central bank’s last meeting showed that “many” officials would have favored a large increase in March if it hadn’t been for uncertainty created by Russia’s invasion of Ukraine.Mr. Waller suggested that even though inflation might be touching a peak — data this week showed it rising at the fastest pace since 1981, as the war in Ukraine drove gas prices higher and exacerbated already-rapid price increases — it remained “very high,” and the Fed was going to need to keep working to reduce it.It is probably the case that “this is pretty much the peak — it’s going to start coming down,” Mr. Waller said, adding that he had forecast price increases slowing throughout the second part of the year as part of the economic projections he submitted at the Fed’s March meeting. “We’re already seeing some oil prices retreating back.”But Mr. Waller said it was critical to lift rates up to, and even above, neutral to bring down inflation.“Right now, our main concern is getting these prices down, and we can do that without causing a recession,” he said.Markets have heavily penciled in big rate increases in May and June, and investors had marked up the odds of a big move in July over recent weeks. More

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    Digital Currency Is a Divided Issue at the Federal Reserve

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    Officials at the Federal Reserve seem to be increasingly divided over whether it ought to issue a digital dollar — a digital currency that traces straight back to the central bank rather than to the private banking sector.Speeches by several Fed officials show they have yet to align on the issue, even as the Fed’s peers in China, parts of Europe and smaller economies like the Bahamas have created digital currencies or are working toward issuing them. The Fed plans to release a report on the potential costs and benefits of a digital dollar this summer.Lael Brainard, a Fed governor appointed during the Obama administration, made it clear during remarks last week that she envisions a future in which America’s central bank explores and issues a digital currency. But Christopher Waller, her colleague on the Fed’s Board of Governors and a Trump nominee, made it equally obvious during a speech on Thursday that he questions whether that is necessary.“The dollar is very dominant in international payments,” Ms. Brainard said during remarks in Aspen, Colo., adding that she could not imagine a situation in which other countries issue digital currencies and the United States doesn’t have one.“I just, I can’t wrap my head around that,” she said. “That just doesn’t sound like a sustainable future to me.”Mr. Waller, by contrast, suggested that there is little a central bank digital offering could do that the private sector cannot and that the potential benefits of a digital dollar are most likely overstated, while the risks are substantial. He added that the United States need not worry about the U.S. dollar’s being supplanted by China’s digital offering.“I am left with the conclusion that a C.B.D.C. remains a solution in search of a problem,” Mr. Waller said on Thursday, referring to a central bank digital currency. He also voiced concerns that a central bank currency would give the Fed too much information about private citizens.Randal K. Quarles, the Fed’s vice chair for supervision, has also sounded dubious about the need for a central bank digital currency, painting the idea as a passing fad. Jerome H. Powell, the Fed chair, has at times questioned whether such an offering is necessary, but he has more recently stressed that it is important to investigate the idea and has called himself “legitimately undecided.”Supporters of central bank digital currency say it is critical for the United States to stay on top of the technology, even if it is not yet clear what benefits such currencies will offer in practice. Some suggest that a Fed digital dollar could prevent stablecoins — private digital assets backed by a bundle of currencies or other assets — from becoming dominant and creating a big financial stability risk.But opponents worry that a central bank digital currency would not offer benefits that the private sector did not or could not provide and that it might introduce cybersecurity vulnerabilities, issues that Mr. Waller raised Thursday.Commercial banks have also pushed back on the idea, worrying that their consumer banking services will be supplanted by Fed accounts and warning that such a situation would cause them to cut back on their lending. Mr. Waller — despite his overall skepticism — sounded unsympathetic to that argument.“There’s a lot of ways that banks could raise funds,” he said, noting that it might hit bank profit margins but that he wouldn’t have an issue with that. “The whole idea is that if they compete, then the funds don’t flow out, so it could be the case that just the existence of a C.B.D.C. causes fees to go down, deposits to go up.” More

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    The Fed’s newest governor sees America’s inflation pop as temporary.

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    Christopher Waller, the newest governor on the Federal Reserve’s Washington-based board, said on Friday that he expects an unfolding acceleration in inflation — which is expected to intensify in the coming months — will prove short-lived.“I do buy into the idea that this is going to be temporary,” Mr. Waller said on CNBC, during his first television interview since President Donald J. Trump nominated him to the role and the Senate confirmed him. “Whatever temporary surge in inflation we see right now is not going to last.”Inflation data are being measured against very low readings from 12 months ago, causing a mechanical year-on-year jump, he noted. Spending tied to government stimulus and supply chain constraints will also have an effect.“We know the stimulus is going to have some impact, but once the stimulus checks are spent, they’re gone,” Mr. Waller said. “We also know that the bottlenecks that are currently there are going to go away.”The Consumer Price Index, a closely watched inflation measure, rose 2.6 percent in March from a year ago, the Labor Department said earlier this week. But it was skewed by the comparison to March 2020, when prices of some items fell as consumers pulled back spending in the face of the pandemic.While the C.P.I. and other inflation gauges are expected to rise even higher in coming months, Fed officials and most economists project that they will settle back down before long. Many officials see key measures hovering near the central bank’s 2 percent average inflation target by the end of the year.Mr. Waller said that investors themselves are not betting on “outrageous, runaway inflation” and that even if the data show a stronger pickup, the Fed stands ready to contain that and is not going to just let inflation “rip.”“I don’t think anyone would be very comfortable if it got to three, three-plus and stayed there for a while,” Mr. Waller said, noting that the bigger concern would be if inflation expectations jumped. More

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    A Trump Fed Pick Squeaks Through Senate Confirmation

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyA Trump Fed Pick Squeaks Through Senate ConfirmationChristopher Waller will be the fifth Trump pick on the Fed’s seven-member Board of Governors.Christopher Waller was the more conventional of President Trump’s two pending picks for the Fed board; the other has increasingly faint hopes for approval.Credit…Erin Schaff/The New York TimesBy More