Istanbul:US Federal Reserve board member Christopher Waller indicated that further interest rate hikes might be necessary to achieve the Fed's 2% inflation target if economic data continues to align with projections. This statement was made during his speech at the Istanbul Economic Forum.
According to Anadolu Agency, Waller delivered an extensive analysis of the US economic landscape at the event hosted by the Turkish Central Bank. He emphasized that additional tightening could be required to expedite progress towards stabilizing prices.
The two-day forum, organized by the Central Bank of the Republic of Türkiye, brought together central bank governors and high-level policymakers from around the globe, including participants from both the US and the UK, to tackle global economic policy challenges.
The Fed had raised rates by 2 basis points to 3.75-4% during the September Federal Open Market Committee meeting after a period of nine months without changes. This followed a cumulative reduction of 75 basis points across the last three meetings of the previous year in response to a softening labor market.
Waller remarked that while inflation control efforts had stalled, employment remained stable in the year's first half, partly influenced by energy price spikes due to conflicts in the Middle East. He had initially supported maintaining rates, expecting regional conflicts to be brief; however, these hopes have diminished, and analysts predict prolonged high oil prices due to damaged infrastructure and low inventories.
He also noted that investments in artificial intelligence infrastructure have surged, raising the cost of high-tech products, while ongoing trade disputes might increase inflationary pressure through new tariffs.
Waller expressed concern that the recent inflation uptick could elevate future inflation expectations among consumers, investors, and businesses. He emphasized that while the interest rate outlook among Fed officials indicates potential monetary policy directions, future rate decisions will depend on economic data.
The rise in Treasury bond yields, he stated, results from robust economic growth, higher productivity forecasts, and anticipated policy tightening. Waller cautioned that the significant borrowing by AI firms for investment could increase US government borrowing costs.
American consumers have shown resilience amidst banking, geopolitical, and pandemic challenges. Waller described AI as a 'revolutionary technology' expected to enhance productivity over time, though its impact on economic data is not yet apparent. He noted that while AI might lead to job shifts, it would also foster a competitive ecosystem of firms rather than result in monopolistic dominance that could trigger economic instability.
He also mentioned that the expansion of private credit funds poses certain risks to commercial banks. However, he believes that well-managed private credit funds present limited systemic liquidity risks, as they secure capital over extended periods without the need for on-demand redemptions.