“With regard to future rate cuts, I am going to need to see improvement on inflation or a significant deterioration in the labor market before I would consider reducing the policy rate,” Waller said in a guest lecture Friday (May 22) at Centre for Central Banking in Frankfurt, Germany. “So, on net, my current policy position is to hold rates steady for the near term.”
Even with these inflationary pressures, the U.S. economy continues to grow at a solid 2% pace, upheld by what Waller called “torrid” business investment in artificial intelligence and resilience in consumer spending.
While consumer sentiment has hit a record low, retail sales — particularly at gasoline stations and restaurants — suggest that households are still “opening their wallets,” even as the personal savings rate has fallen to a four-year low of 3.6%, he added.
Beyond the economic outlook, Waller devoted most of his lecture to inflation, arguing that the ultimate impact of inflation will depend on the length of the current Middle East conflict, how much supplies are disrupted, and how much input costs affect final product prices.
“To me, the impact of these factors on inflation is more uncertain than was the impact of tariffs,” Waller said.
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While energy prices drove up headline inflation last month as expected, Waller added that “one surprise” was the extent of other price increases, with consumer price index up 0.6% last month, with a 3.8% increase in energy prices.
“More concerning was that grocery prices in April were up 0.7%, apparel 0.6 %, and services excluding energy 0.5%,” Waller said. “These are all sizable monthly growth rates and come on the heels of other significant increases.”
Another concern is the range of price increases recently, with roughly half of the categories of goods and services prices monitored in consumer inflation up 3% or higher this year, which Waller called “a historically large share.”
As covered here earlier this month, the newest inflation figures reinforce a trend that’s shown up in PYMNTS Intelligence research.
“Consumers are increasingly changing how they manage spending, liquidity and payments as elevated living costs become more deeply embedded in everyday life,” that report said.
The research found that 89% of consumers cited financial stress tied to groceries early this year, compared to 84% in October.
“Grocery inflation has evolved from a temporary budgeting problem into what many households now view as a recurring cash flow challenge,” PYMNTS wrote.
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