US Fed's Waller favours 'aggressive' rate hikes to combat inflation

The US central bank should move more quickly to increase the benchmark lending rate in order to contain high prices despite the uncertainty surrounding the war in Ukraine, Federal Reserve Governor Christopher Waller said Friday.

The Fed raised the policy rate by a quarter point on Wednesday, bringing it off zero for the first time since the pandemic began, as the US economy faces the highest annual inflation in four decades, and is under more pressure due to rising commodity prices as the result of the war.

Though Waller had advocated for a bigger increase immediately, he said he refrained from pushing for that this week because of the Russian invasion.

"Inflation is raging," Waller said on CNBC. "The data is basically screaming at us to go 50 (basis points), but the geopolitical events were telling you to go forward with caution."

Getting a handling on inflation this year and next will require "some aggressive rate hikes earlier in the year," which would mean half-point moves "at one or multiple meetings in the near future."

While the fallout from the war will slow the recovery, "the US economy is still going to be growing at a very, very healthy pace this year," Waller said, noting that rate increases are unlikely to cause a recession.

St Louis Federal Reserve Bank President James Bullard was the lone dissenting vote on Wednesday by the policy-setting Federal Open Market Committee (FOMC) because he favored a half-point increase.

In a statement Friday, Bullard said the policy rate "is currently far too low to prudently manage the US macroeconomic situation."

"The Committee will have to move quickly to address this situation or risk losing credibility on its inflation target," said Bullard, who pushed for a rate above 3.0 per cent by the end of the year.

Waller said he wants to see the level back to what is considered neutral -- neither stimulating nor restraining the economy -- which he put at around 2.0-2.25 per cent.

But policymakers are split. The median forecast is for the rate to be just under 2.0 per cent by the end of the year.