In a speech delivered at an academic conference held by the San Francisco Fed on Friday, U.S. Federal Reserve Governor Christopher Waller shared his belief that the central bank may be able to reduce inflation without negatively impacting the labor market. Waller noted that if the public begins to believe that prices will continue to rise, the Fed may need to take drastic measures to change those expectations, which could result in severe consequences such as sudden rate hikes and significant job losses.
However, Waller also suggested that if inflation is being driven by a sudden increase in the frequency at which businesses reset their prices, as evidenced by some data, then reducing inflation would be possible with little adverse effect on unemployment rates. He stated that recent data aligns with this notion, but more information is required to confirm which theory is correct.
The Fed has been closely monitoring inflation levels in the U.S. economy, which have been on the rise in recent months. Waller’s remarks highlight the challenge faced by the central bank in balancing inflation control with preserving job market stability. Ultimately, the Fed will need to continue analyzing data and assessing the best course of action to maintain a healthy economy.