Fed Governor Waller (Voter) Q&Q: With CPI and PPI in hand, have a pretty accurate view of PCE inflation

Policy Should start to see some lower numbers on inflation, expects a reasonable CPI. Willing to sit, wait and be patient. When you're near a turning point you have to put more weight on near term data. If that reverses in August, he is willing to pull trigger on rate hike. Can give disinflation a chance, we can wait one meeting. There is little cost to waiting one meeting. This is risk management, but not taking big chances. Inflation He keeps an eye on core inflation, says the headline tends to be a bit noisy Will let us define what "hot" is. Doesn't want to put any numbers on it, but if 3-month number gets to 2.8, that is fine. Should push aside non-market prices (re portfolio management fees) If increasing potential capacity, increased output is not inflationary. Could see disinflation from AI, potential is rising. AI has not yet shown up in the economic data. Not going to say lets wait until next year, but let's wait to see improvement on inflation. Financial conditions Mortgage rates and auto loan rates are not low. Looser financial conditions is really a reflection of stock prices. Rates that affect regular Americans are not loose. Bond Market Can not keep running a 3% structural deficit. Maybe doesn't mean you walk off a cliff, but yields may go up. Yields are going up because of fiscal stuff and AI competition for capital. Some interesting research shows premium for treasuries has gone away, also contributing to higher yields. That has been leading him to raise his neutral rate estimate. Zero population growth brings down yields and real rates. Convenience yield going away is a bad story and raises yields. Term premium is also rising. What the Treasury does next is their business. Short-run interventions do not no much. It is Treasury Secretary's prerogative to do it. Short term moves do not have much impact. Task Forces Communication Need to have a rule for how the Fed is going to respond, or you can not forecast. Need reaction function to be consistent. Precise quantities of reaction function might have imperfections, but qualitatively it is important. Have a very different view on reaction function perfection than Warsh. It does not do any good to surprise markets. Giving some idea of what's ahead allows investors to make decisions. The "never explain" was an old model, it is not a good model. Not sure a whole lot will come out of the communications task force. Pushback against scenario views last year was strong. Balance sheet Will be against any reccomendation to go to scarce reserves. Data Must be wary about trust problem, need to use data people can verify. Inflation task force could be the most interesting.