Smart Talk Success

Federal Reserve Governor Christopher Waller pledged Tuesday that the rate-setting group wouldn’t make the same mistakes on inflation that it did in the 1970s.

Back then, he said during a panel chat with Minneapolis Fed President Neel Kashkari, the central bank talked tough on inflation but wilted every time tighter monetary policy caused an uptick in unemployment.

This time, Waller said he and and his colleagues will follow through on its intentions to raise interest rates until inflation comes down down to the Fed’s targeted level. The central abnk has raised rates twice this year, including a half percentage point move last week.

“We know what happened for the Fed not taking the job seriously on inflation in the 1970s, and we ain’t gonna let that happen,” Waller said.

The remarks came with inflation running at its hottest pace in more than 40 years. Earlier in the day, President Joe Biden called inflation the economy’s biggest challenge now and noted fighting price increases “starts with the Federal Reserve.”

Though he noted the central bank’s political independence, Biden said, “The Fed should do its job, and it will do its job. I’m convinced of that in my mind.”

While Waller drew the comparison to the Fed of the 1970s and early ’80s, which eventually defeated inflation with a series of massive interest rate hikes when Chairman Paul Volcker took over, he said he doesn’t think the current policymakers need to be as aggressive.

“They had zero credibility, so Volcker just basically said, ‘I’ve got to just do this shock and awe,'” Waller said. “We don’t have that problem right now. This is not a shock-and-awe Volcker moment.”

The Volcker moves took the Fed’s benchmark interest rate to close to 20% and sent the economy into recession. Waller said he had a conversation with the former chair before his death, and Volcker said, “If I had known what was going to happen, I never would have done it.”

Waller said he thinks the economy can withstand the path of rate hikes this time that will be much gentler than the Volcker era.

“The labor market is strong. The economy is doing so well,” he said. “This is the time to hit it if you think there’s going to be any kind of negative reaction, because the economy can take it.”

Earlier in the day, Richmond Fed President Thomas Barkin also backed the goal of getting inflation under control, saying the likely path will get the fed funds rate to a range of 2% to 3% and “we can then determine whether inflation remains at a level that requires us to put the brakes on the economy or not.”

Consumers grew a little more optimistic about inflation in April, though they still expect to be spending considerably more in the year ahead, a Federal Reserve survey released Monday shows.

Inflation expectations over the next year fell to a median 6.3%, a 0.3 percentage-point decrease from the record high in March, according to data going back to June 2013. On a three-year basis, expectations rose 0.2 percentage point to 3.9%, which itself is 0.3 percentage point off the record.

The data comes with 12-month inflation in March running at 8.5%, the highest level since December 1981. April consumer prices are due to be reported on Wednesday.

Responding to the surge in prices, the Fed last week raised benchmark interest rates by a half percentage point, the biggest hike in 22 years and the second increase of the year.

“We have our job to do and we have to bring inflation back down,” Minneapolis Fed President Neel Kashkari told CNBC’s “Squawk Box” in a Monday morning interview.

Americans are still leery about the high cost of living. Household spending is projected to rise 8% over the next year, according to the New York Fed survey. That’s a 0.3 percentage point increase from a month ago and another series high.

However, there also was some optimism, as consumer expectations for gas price increases fell to 5.2%, a 4.4 percentage point drop that came as oil prices edged lower in April. Respondents also grew more secure in their jobs, with just 10.8% expecting to lose their employment over the next 12 months, tied for an all-time low.

Expectations for home prices were unchanged, but the 6% anticipated increase is still higher than the long-term average.

Minneapolis Federal Reserve President Neel Kashkari said Monday he’s confident inflation will come back to normal, though he added it will take longer than he expected.

Acknowledging that he was on “team transitory” in believing that surging prices wouldn’t last, he said persistent supply-demand imbalances have generated the highest inflation levels in more than 40 years.

While the Fed’s monetary policy tools can help tamp down demand, they can’t do much to get supply to keep up.

“I’m confident we are going to get inflation back down to our 2% target,” he told CNBC’s “Squawk Box” in a live interview. “But I am not yet confident on how much of that burden we’re going to have to carry versus getting help from the supply side.”

His comments come less than a week after the Federal Open Market Committee raised benchmark rates by a half percentage point. The 50 basis point hike was the largest increase in 22 years and sets the stage for a series of similar-sized moves in the months ahead.

Though Kashkari historically has favored lower rates and looser monetary policy, he has voted in favor of the two increases this year as necessary to control spiraling prices. He noted, though, that the burden from tighter policy will fall on those at the lower end of the wage spectrum.

“It’s the lowest-income Americans who are most punished by these climbing prices, and yet your policy tools to tamp down inflation most directly affect those lowest-income Americans as well, either by raising the cost to get a mortgage … or if we have to do so much that the economy were to go into recession,” he said. “It’s their jobs that are most likely put at risk.

“So this is a difficult challenge I think for all of us, but we also know that letting inflation stay at these very high levels, it’s not good for anybody and it’s not good for the economy’s long-run potential for anybody across the income distribution,” he added.

On Wednesday, the government will release its latest data on consumer prices, followed by April producer prices on Thursday.

Economists expect the pace of inflation to have eased a bit in April, with the headline consumer price index likely to show an 8.1% increase over the past year, and 6% excluding food and energy, according to Dow Jones estimates. That compares to March’s respective climbs of 8.5% and 6.5%.

Those kinds of numbers provide some comfort to Kashkari, though he said conditions remain challenging as long as the supply and demand imbalances remain.

“We just need to keep paying attention to the data,” he said. “Some of the more recent inflation data by some measures is a little softer than we had thought might come in. So maybe there’s some evidence that things are starting to soften by a hair. But we just need to keep paying attention to the data and see where it comes out before we can draw any conclusions.”