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U.S. May Raise Rates a Full Point

FILE - The seal of the U.S. Federal Reserve System is displayed in the Federal Reserve Board Building in Washington. Taken 2.5.2018

US Federal Reserve Governor Christopher Waller signaled Thursday a possible full percentage point interest rate hike -- a move not seen for more than 30 years and a further indication of the Fed's determination to rein in sky-high inflation.

The U.S. Fed chief, Christopher Waller, previously expressed support for another 75 basis point hike at the policy meeting later this month, but he said Thursday he will be watching key reports on retail sales and housing coming in before then. And that may trigger a full-point rate hike.

"If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down," Waller said in a speech to an economic conference.

The Fed in March began aggressively raising borrowing costs to try to cool demand that has outpaced supply amid the impact of the Ukraine war and Covid-19 lockdowns in China.

But data so far have not shown significant signs of easing, and inflation reports this week showed prices rebounded in June, with consumer prices surging 9.1 percent.

The increased cost of everything from food to fuel has squeezed the household budgets of American families and heaped pressure on President Joe Biden, whose approval ratings have taken a battering from the relentless rise in prices.

The Fed's moves so far have marked "the fastest pace of tightening in close to 30 years," Waller said. But the large move last month "was not an over-reaction" given the repeated high inflation readings since the beginning of the year, he added.

"With inflation so high, there is a virtue in front-loading tightening," he said. "Getting there sooner will bolster the public's confidence that we can get inflation down" so that high prices do not become entrenched in the economy.

He downplayed the recent upsurge in recession fears, saying a downturn is unlikely given the very tight labor markets.

"I believe it can be avoided," he said, noting that the economy can cool and reduce the surplus of job vacancies without a big uptick in unemployment, which he said is close to the lowest in seven decades.