Waller Says Fed Can Cut Rates This Year Absent Inflation Rebound
By Craig Torres
(Bloomberg) --
Federal Reserve Governor Christopher Waller said the US central bank can cut interest rates this year absent a rebound in inflation, but he emphasized the Fed should be methodical and careful with the pace of easing.
“I am becoming more confident that we are within striking distance of achieving a sustainable level of 2% PCE inflation,” Waller said in prepared remarks at a virtual event hosted by the Brookings Institution on Tuesday. “As long as inflation doesn’t rebound and stay elevated, I believe the FOMC will be able to lower the target range for the federal funds rate this year.”
The Fed governor offered some of the most detailed remarks to date around the Fed’s intentions to ease policy this year. While Waller showed an openness to cutting rates, his comments also appeared to push back against market expectations for as many as six rate cuts this year.
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he said. “With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past.”
He said the timing of cuts and the actual number “will depend on the incoming data.”
Waller’s remarks highlighted his intention to balance both sides of the policy risk and avoid staying restrictive for too long, while also not beginning to reduce rates before their 2% inflation goal was secure. He noted that he needs to see a moderation in consumption and hiring as well as continued low readings on monthly inflation data to bolster the case for a cut.
“I will need more information in the coming months confirming or (conceivably) challenging the notion that inflation is moving down sustainably toward our inflation goal,” Waller said.
“The data we have received the last few months is allowing the committee to consider cutting the policy rate in 2024,” Waller said. “However, concerns about the sustainability of these data trends requires changes in the path of policy to be carefully calibrated and not rushed.”
Waller said the surprising strength in the December jobs report was “largely noise” against a trend of ongoing moderation. He noted a number of 2023 job reports have been revised lower, and “there is a good chance December will be revised down.”
Government figures out this month showed employers added 216,000 jobs in December — exceeding expectations — while inflation picked up. The consumer price index increased 3.4% in the year through December, the most in three months, fueled by stubborn services costs and a pause in a months-long decline in goods prices.
Waller described current financial conditions as restrictive and said “the setting of policy needs to proceed with more caution to avoid over-tightening.”
“I believe policy is set properly,” he said. “It is restrictive and should continue to put downward pressure on demand to allow us to continue to see moderate inflation readings.”
Waller last spoke on the economy on Nov. 28, two weeks before the Fed’s December meeting. At the time, he said, “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.”
