Fed Governor Waller Signals a Full-Point Rate Increase is Possible, but Not Yet

Christopher Waller, a Federal Reserve governor, said he supported increasing the central bank’s policy interest rate in July by the same amount as in June, though he suggested that an even larger move could be warranted if economic data continued to come in hot.

The Fed raised interest rates by 0.75 percentage points last month, its largest increase since 1994, in an effort to quickly slow down borrowing and spending and cool off an economy that is experiencing the fastest inflation in four decades. Investors had expected a similar move at the central bank’s July 26-27 meeting, but then a fresh inflation report this week came in unexpectedly high.

Now, the probability that traders are putting on an even bigger move — a full percentage point, which would be the biggest increase since the 1980s — has jumped. But Mr. Waller suggested that he was not yet ready to come out in favor of such a large move.

Mr. Waller said in a speech prepared for delivery on Thursday that “with the C.P.I. data in hand, I support another 75-basis point increase.”

Such a move would bring interest rates up to what the Fed sees as a neutral setting: the point at which they are no longer helping the economy, and would start constraining it if rates were pushed higher.

But Mr. Waller added that “we have important data releases on retail sales and housing coming in before the July meeting,” suggesting that he could still support an even larger move depending on how conditions evolve.

“If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting,” he said, “to the extent it shows demand is not slowing down fast enough to get inflation down.”

Several officials — including Loretta Mester, the president of the Federal Reserve Bank of Cleveland, and Mary C. Daly, president of the Federal Reserve Bank of San Francisco — have declined to support such a large move now, but have not ruled it out. They have instead based the chance of a larger move on incoming data, particularly retail sales and a survey on consumer inflation expectations that are set for release on Friday.

The Fed is on alert as inflation speeds up and becomes more pervasive, past the time when many had expected it to moderate.

The Consumer Price Index picked up by 9.1 percent over the year through June, more than the 8.8 percent economists had expected. That was driven in large part by a spike in gas prices that has since cooled, but the underlying details of the report suggested that rent, food and an array of services were also growing more expensive, a sign that inflation is becoming stickier, which is worrying news for central bankers.

The report “was a major-league disappointment,” Mr. Waller said.

“Inflation has to be our focus, every meeting and every day, because the spending and pricing decisions people and businesses make every day depend on their expectations of future inflation, which in turn depend on whether they believe the Fed is sufficiently committed to its inflation target,” he said.

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