Fed Governor Christopher Waller Gives an Optimistic Speech

Federal Reserve Governor Christopher J. Waller (photo from the Associated Press via the Wall Street Journal)

Fed Governor Christopher Waller has a reputation for being a policy hawk, which means that since the spring of 2022 he has been a forceful advocate of multiple increases in the target for the federal funds rate as the Fed attempts to slow the economy and bring inflation back to the Fed’s 2 percent target. (Waller’s biography on the Fed’s web site can be found here.)

So, it was notable that in a speech at the American Enterprise Institute (AEI) on November 28, he said that “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent.” Although he also stressed that “there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the [Federal Open Market Committee] FOMC has done enough to achieve price stability” his remarks were interpreted as reinforcing the growing view among non-Fed economists and investors that the FOMC is unlikely to increase its target for the federal funds rate further and is likely to reduce the target at some point during 2024. The text of Waller’s speech can be found here.

AEI economist Michael Strain interviewed Waller following his speech. In the interview (which can be found here), Strain made the case for believing that the Fed’s ability to achieve a soft landing—returning inflation to the 2 percent target without pushing the economy into a recession—would be more difficult than Waller seems to believe. Included in the interview are discussions of whether expecting a soft landing is consistent with the historical record, what guidance the Taylor rule can give to monetary policymakers (we discuss the Taylor rule in Macroeconomics, Chapter 15, Section 15.5, Economics, Chapter 25, Section 15.5, and Essentials of Economics, Chapter 17, Section 17.5), the significance of rising labor force participation rates among prime-age workers, and the implications large federal budget deficits have for monetary policy.