One of the most influential US rate-setters has signalled his support for another rise in borrowing costs at the Federal Reserve’s next policy meeting in May, despite uncertainty over the fallout from the recent banking stress.

Christopher Waller, a Fed governor, said in prepared remarks on Friday that the turmoil sparked by the failure of several midsized US lenders had not led to US borrowing conditions “significantly” tightening.

With inflation, at 5 per cent, still “far above” the Fed’s 2 per cent target and the labour market remaining “strong and quite tight”, monetary policy needed “to be tightened further”, he said.

“How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions,” Waller said.

The comments come amid an ongoing debate about the US central bank’s next steps. Rate-setters are split on whether further policy action is warranted in order to push inflation back down to the 2 per cent target, or if the recent banking turmoil now means the central bank may not have to squeeze the economy as much.

Policymakers this week appear to have coalesced around the need for another rate rise at the Fed’s next gathering in early May.

Minutes published this week of the Fed’s most recent policy meeting — at which it ploughed ahead with a quarter-point rate rise despite having to step in roughly two weeks before to bolster the banking system after multiple lenders failed — suggested officials expected there to be some impact on economic activity, hiring and inflation. However, they concluded at the March meeting that the magnitude of that impact was highly uncertain.

The Fed has raised rates aggressively over the past year to counter a surge in inflation to multi-decade highs. Price pressures have however fallen back in recent months.

Several officials even considered forgoing a rate rise altogether, the account of the meeting showed. Fed staff also predicted a “mild recession” starting later this year before the economy recovers over the next two years.

Waller, one of the most influential voices on the Fed’s board of governors, on Friday said the decision to follow through with a rate rise last month had been “validated”, but acknowledged that the recent turbulence “might have solidified and pulled forward factors that were already working to tighten lending conditions”.

While a “significant tightening of credit conditions” would lessen the need for further rate rises, making such a judgment was “difficult, especially in real time”, he said.

Most officials in March projected they would make one more quarter-point rise, which would push the federal funds rate from its current level of 4.75 to 5 per cent to a peak range of 5 to 5.25 per cent. Rates would stay at that level until the end of the year.

In a moderated discussion that followed his remarks, Waller indicated that before the banking stress, he had been prepared to back more rate rises.

Waller said he had been surprised by the strength of incoming data so far this year.

Fresh inflation figures this week showed core consumer price growth, which strips out changes in volatile food and energy prices, still registered a strong 0.4 per cent monthly pace. The latest jobs data, published last week, showed the labour market remained strong.

Waller said he stood ready to adjust his stance if lending conditions appeared to deteriorate more than expected and the trajectory of the economy changed materially.

Retail sales data on Friday showed a larger decline than expected, at 1 per cent, as Americans pulled back on spending. However, year-ahead inflation expectations rose a full percentage point between March and April to 4.6 per cent, preliminary figures from the University of Michigan showed.

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