Fed’s Waller nods to economic ‘collateral damage’ as rates rise

(Bloomberg) – The Federal Reserve is doing all it can to avoid “collateral damage” from rising interest rates, a “tool of brute force” that can act as a “hammer” on the economy, said Gov. Christopher Waller.

“When you have to use a tool of brute force, sometimes there’s collateral damage that happens,” Waller said Monday at a Fed Listens event in Nashville that also streamed virtually. “We try to do this in a way that there aren’t many, but we can’t fit the policy.”

Fed officials raised rates by a quarter point last month to a target range of 0.25% to 0.5% and indicated they planned to raise rates to 1.9% d by the end of 2022 and 2.8% by the end of next year, according to their median forecast. .

Since then, officials have said they stand ready to act more quickly if needed to rein in the highest inflation in four decades, including raising by half a point at their May 3-4 meeting.

Minutes from the Fed’s March meeting showed many preferred to go this far last month, but opted for a more cautious quarter-point hike in light of the Russia’s invasion of Ukraine and were open to a half-point rate increase at one or more future meetings.

Waller said the “tricky part” will be whether the Federal Open Market Committee can keep raising rates without causing problems in areas such as jobs and production.

“With housing, can we cool housing demand without dragging down the construction industry? Can we cool labor demand without plummeting employment? That’s the tricky road we’re on,” said Waller said.

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