The Fed’s Waller says the market has overreacted to consumer inflation data: “We have a long way to go.”

“It looks like the market is out in front of this CPI report. Everyone should take a deep breath and calm down,” Waller said.

Investors cheered CPI soft printing, released Thursday, pushing stocks into their best week since June. S&P 500 SPX Index,
+ 0.92%
It closed up 5.9% for the week.

The data showed that the annual rate of consumer inflation fell to 7.7% from 8.2%, an indication The lowest level since January. Inflation peaked at a 41-year high of 9.1% in June.

Waller said it was good to have some evidence that inflation was going down, but noted that there had been other times over the past year that inflation seemed to be heading down.

“We’re going to see a continuing streak of this kind of behavior and inflation will slowly start to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.

“We have a long way to go to reduce inflation. Prices will continue to rise and will remain high for some time until we see this inflation approaching our target,” he added.

He said the Fed is focusing on how much higher rates need to bring down inflation, and that will only depend on inflation.

Waller said the “worst thing” the Fed could do was stop raising interest rates only to explode inflation.

He added that the 7.7 percent inflation rate we saw in October was “enormous”.

The Federal Reserve indicated at its last meeting earlier this month that it may slow the pace of rate hikes in upcoming meetings.

The central bank has boosted interest rates by about 400 basis points since March, including four consecutive increases of 0.75 percentage points unheard of before this year.

“We are looking to move in steps of up to 50 [basis points] At the next meeting or the next meeting after that, Waller said.

The Federal Reserve will hold its next meeting on December 13-14, and then again on January 31-February. 1.

At the same time, Powell said that the Fed is likely to raise interest rates above the 4.5%-4.75% final rate they had previously forecast.

The signal was ‘stop paying attention to the pace and start paying attention to where the end point will be,’ said Waller.

In the wake of the CPI report, investors who trade in Fed fund futures see the Fed’s final interest rate at 5%-5.25% next spring and then quickly regress to 4.25%-4.5% by November. This is well below previous levels of CPI data.