Federal Reserve Board Governor Christopher Waller speaks at the San Francisco Federal Reserve Conference in San Francisco, California, USA on March 31, 2023.
Ann Safire | Reuters
Federal Reserve Governor Christopher Waller said on Wednesday that interest rates would be cut soon as long as there are no major surprises in inflation and employment.
“I believe the current data are consistent with achieving a soft landing, and I will be looking for data in the coming months to support that view,” Waller said in a speech at a Kansas City Fed program. “So, while “I don’t believe we’ve reached our final destination, but I do believe we’re approaching the point where we need to lower policy rates.”
Waller’s view, consistent with statements from other policymakers, suggests a rate cut is unlikely when the FOMC meets later this month, but action in September is more likely.
Central bank chiefs have become more optimistic after data in recent months showed inflation slowing after unexpectedly rising in the first three months of 2024.
Waller outlined three possible scenarios for the coming days: one in which inflation data turns more positive and justifies a rate cut “in the near future”; a second in which data fluctuates but remains moderate; a third in which What’s happening is that inflation is rising, forcing the Fed to adopt a tighter policy stance.
Of the three scenarios, he thinks the third is the least likely to unexpectedly strengthen.
“Given that I think the first two scenarios are most likely to occur, I believe the time to lower policy rates is getting closer,” Waller said.
Waller’s comments Wednesday are particularly noteworthy because he is one of the more hawkish FOMC members this year, or one of those advocating for tighter monetary policy amid growing concerns that inflation will be more persistent than expected. .
In May, Waller told CNBC he expected rate cuts to be “a few months away” as he waited for more convincing data to show inflation was receding. His speech on Wednesday suggested that threshold is close to being met.
First, he said the labor market is “in tip-top shape,” with employment expanding and wage gains cooling. At the same time, the consumer price index fell 0.1% in June, while core prices fell 3.3% at an annual rate, the lowest level since April 2021.
“After disappointing data to start 2024, we now have several months of data that I think are more consistent with the steady progress we made last year in lowering inflation and also with the FOMC’s price stability goals,” he said. Consistent. “There is growing evidence that first-quarter inflation data may be biased, with the impact of tighter monetary policy holding back high inflation. “
The comments were also consistent with those of New York Fed President John Williams. told the Wall Street Journal in an interview published Wednesday. Williams noted that the inflation data are “all moving in the right direction and pretty consistently” and “taking us closer to the deflationary trend that we are looking for.”
The market is again pricing in looser policy from the Federal Reserve.
Traders in the federal funds futures market expect a first quarter-percentage point rate cut in September, followed by at least one more rate cut before the end of the year, according to CME Group’s FedWatch indicator.
Fed funds futures contracts currently imply year-end interest rates of 4.62%, about 0.6 percentage points below current levels.
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