US Federal Reserve official warns investors to brace for more steep rate rises

The US Federal Reserve will push through more steep rate hikes if inflation shows little sign of letting up, a top stateside central banker said over the weekend.

Fed governor Christopher Waller said at a Society for Computational Economics conference in Dallas that “if the data comes in as I expect, I will support a similar-sized move at our July meeting”.

Last week, chair Jerome Powell and co signed off a 75 basis point rate rise, the steepest increase since 1994, taking the world’s most important interest rate to between 1.5-1.75 per cent.

That lift builds on a 50 basis point increase in May. The Fed typically moves in 25 basis point increments.

The policy tightening acceleration has been driven by US inflation scaling to heights not seen in decades.

Prices are 8.6 per cent higher than they were a year ago, the quickest acceleration since the 1980s, according to latest Labor Department figures, which also beat Wall Street’s expectations of a 8.3 per cent jump.

Core inflation and monthly consumer inflation each surprised to the upside, illustrating the scale of price pressures sweeping through the US economy.

Concerns are mounting over whether the Fed will tip America into a recession by going too quickly.

“My goal is just to slow the economy,” Waller said, indicating the central bank’s top officials are assigning greater value to taming inflation compared to protecting US growth.

Other central banks are in the process of turning off ultra-stimulative policy that has propped up the global economy since the financial crisis and was ramped up during the pandemic.

The Bank of England last week opted for a smaller 25 basis point rise, its fifth in a row, taking UK borrowing costs to 1.25 per cent. 

The European Central Bank said it will lift rates for the first time in over a decade next month.