Fed’s Waller warns close policy votes could undermine policy expectations

Investing.com -- Federal Reserve Governor Christopher Waller said on Monday that while dissent among policymakers is healthy, razor-thin votes on interest rates could undermine market confidence in the future direction of monetary policy.

With Fed officials openly divided over the need for additional rate cuts, Waller suggested the Federal Open Market Committee (FOMC) might soon display "the least groupthink you’ve seen from the FOMC in a long time."

Waller emphasized that this division "doesn’t mean anything about the chair’s leadership," but warned that extremely close votes could create problems. "The only problem is if it gets down to 7 to 5 then one person switches at the next meeting the whole trajectory changes. That’s kind of a danger... It doesn’t give people confidence" in the policy path, he explained.

The Fed governor noted that the neutral level of interest rates remains unclear. He also pointed out contrasting economic conditions across different segments of society, stating that monetary conditions are loose for corporate America but not for ordinary households, adding that "things are not great for lower part of income distribution."

Addressing fiscal concerns, Waller said the current 6% budget deficit "is not sustainable in the long run but not likely to lead to crisis in the next 5 years." He added that there have been no market signals indicating problems from the higher budget deficit, and he doesn’t expect major changes in fiscal stimulus next year.

Reflecting on past policy, Waller stated he "would have stopped QE a lot sooner," referring to the Fed’s quantitative easing program. He expressed confidence in market resilience, noting that financial markets are capable of "taking a beating."

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