Fed's Waller: I think 50 really was the right number

Central banks are public institutions with powerful tools, but the way these tools affect the economy is constantly changing. This uncertainty comes, in part, from the famous “long and variable” lags of monetary policy transmission. It typically takes 18 to 24 months for a change in interest rates to have its peak effect on the economy and inflation. But there are also more fundamental issues that affect the transmission of monetary policy, which were identified by Federal Reserve Chairman Alan Greenspan 20 years ago. He wrote that: “The economic world in which we function is best described by a structure whose parameters are continuously changing. The channels of monetary policy, consequently, are changing in tandem.” In other words, the effectiveness of monetary policy is intrinsically linked to the evolving structure of the economy. In recent years, uncertainty about policy transmission has been particularly acute. We have faced the worst pandemic since the 1920s, the worst conflict in Europe since the 1940s, and the worst energy shock since the 1970s. These shocks have changed the structure of the econ post: ECB'S PRESIDENT LAGARDE: THE UNCERTAINTY AHEAD IS STILL PROFOUND. post: ECB'S PRESIDENT LAGARDE: INFLATION IS TO RETURN TO THE 2% TARGET IN 2ND HALF OF 2025. post: ECB'S PRESIDENT LAGARDE: THE UNWINDING OF INFLATION SHOCK IS REMARKABLE.

On Wednesday, September 18, 2024, I dissented from the Federal Open Market Committee's (FOMC) decision to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. As the Committee's post-meeting statement notes, I preferred to lower the target range for the federal funds rate by 1/4 percentage point to 5 to 5-1/4 percent. Given the progress we have seen since the middle of 2023 on both lowering inflation and cooling the labor market, I agree that at this meeting it was appropriate to recalibrate the level of the federal funds rate and begin the process of moving toward a more neutral policy stance. In my view, however, a smaller first move in this process would have been a preferable action. The U.S. Economy Remains Strong The U.S. economy remains strong, with solid underlying growth in economic activity and a labor market near full employment. Although hiring appears to have softened, layoffs remain low. I see the normalization in labor market conditions as necessary to help bring wage growth down to a pace consistent with 2 percent inflation given trend productivity growth. My reading of labor market data has become more uncertain due to increased measurement challenges and the inherent difficulty in assessing the effects of recent immigration flows. I am also taking signal from continued solid growth in the spending data, especially consumer spending, reflecting a healthy labor market. Despite Progress, Inflation Remains a Concern Inflation remains above our 2 percent goal, as core personal consumption expenditures prices are still rising faster than 2.5 percent from 12 months earlier. Higher prices have an outsized impact on lower- and moderate-income households. Accomplishing our mission of returning to low and stable inflation at our 2 percent goal is necessary to foster a strong labor market and an economy that works for everyone in the longer term. post: FED'S BOWMAN ON HER DISSENT: I AGREED IT WAS APPROPRIATE AT THIS MEETING TO RECALIBRATE THE FED FUNDS RATE LEVEL, BUT I PREFERRED A SMALLER FIRST MOVE. post: FED'S BOWMAN: I SEE RISK THAT THE FOMC'S LARGER POLICY ACTION COULD BE INTERPRETED AS A PREMATURE DECLARATION OF VICTORY ON INFLATION.