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Federal Reserve Governor Christopher Waller indicated a potential shift in the US central bank’s approach to interest rate adjustments during the E2 Summit on Wednesday. Amid tightening financial markets, Waller suggested that the Fed could adopt an observant stance before deciding on further modifications to interest rates.
The US economy has shown surprising resilience despite an aggressive rate-hiking campaign that escalated its benchmark interest rate from almost zero to a target range of 5.25%-5.5% within two years. Waller pointed out that the financial markets are essentially doing some of the Fed’s work, thereby potentially reducing the need for further tightening.
The increase in Treasury yields following September’s policy meeting has led other Fed officials, including Vice Chair Philip Jefferson, Dallas Fed President Lorie Logan, and Paul Ryan, to echo Waller’s sentiments. They suggested that current bond market conditions might lessen the requirement for additional monetary policy adjustments.
Logan also highlighted the potential role of increasing risk premiums in cooling down the economy. This development could assist in diminishing the need for further monetary policy shifts.
Investor expectations currently indicate a low probability of a rate hike in the upcoming Oct. 31-Nov. 1 meeting, with less than a 20% chance of an increase in December. This reflects a cautious outlook towards future monetary policy adjustments.
Waller also commented on positive inflation data and noted a trend of softening wage growth. These factors may influence the Federal Reserve’s forthcoming decisions on interest rates, as they continue to monitor economic indicators and market conditions.
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