Fed governor warns of possible interest-rate hikes if inflation comes in hot this week

Fed Governor Christopher J.Waller on Monday warned the central bank may be forced to hike interest rates soon if new inflation data this week comes in hotter than expected. As the war in Iran has pushed inflation to a three-year high while the labor market remains resilient, all eyes at the Federal Reserve are on prices – flipping from an easing bias to a tightening one.“If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term,” Waller, who was nominated by President Trump in 2020, said Monday at an event hosted by the New York Association for Business Economics.June’s Consumer Price Index is expected to show some relief Tuesday morning, with a 0.1% decline over the month and the yearly figure slipping to 3.8%, down from 4.2% the previous month.The Producer Price Index on Wednesday is expected to show a yearly reading of 6.2%, also down from 6.5% the previous month – but Waller said just one month of improved readings isn’t enough to shake off inflation concerns.“I would be very pleased to see a lower reading on core inflation, but after its escalation over the first half of this year, I will need to see several months of lower readings to feel that inflation is moving in the right direction,” Waller said.“For the reasons I have laid out today, I think that is still a reasonable outcome, and I would then continue to hold the policy rate at its current target range.” The majority of traders – or nearly 60% – still expect the Fed to hold interest rates in the key 3.5% to 3.75% range at their July 29 meeting, according to CME FedWatch, which tracks 30-day Fed Funds futures.But now roughly 40% of traders are predicting a quarter-point rate hike at the meeting, a sharp shift from earlier this year, when investors were hopeful the Fed would continue slashing rates after issuing three consecutive cuts in 2025.The on-and-off blockade of the Strait of Hormuz, a vital ...