Federal Reserve Governor Christopher Waller said Thursday that the central bank could cut interest rates multiple times this year if inflation eases as he expects.
The policymaker said in an interview with CNBC that he expects the first rate cut to likely come in the first half of the year, with other cuts to follow as long as economic data such as prices and unemployment cooperate.
“As long as the inflation numbers are good or continue on this path, then I definitely see a rate cut happening sooner rather than later,” Waller said in an interview with Sara Eisen’s “Squawk on the Street.” Priced in the market.
Asked how much that might take, he responded: “It’s all going to be data-driven. I mean, if we make a lot of progress, you can do a lot more,” which he said could mean three to Four, assuming a quarter percent point increment.
“If the data doesn’t cooperate, then if we have severe sticky inflation, then you’re going to go back to two, maybe even back to one,” he said.
After Waller’s speech, traders increased bets on a slightly aggressive pace of rate cuts. The market-implied probability of a move in May rose to around 50%, although June appears to be the better bet, according to CME data. Expectations for a second cut by the end of the year climbed to about 55%, or about 10 percentage points higher than before he spoke.
At the heart of Waller’s desire to ease policy is the belief that inflation will ease further over time, despite months of data showing stickiness in some key prices. The core consumer price index excluding food and energy slowed to 3.2% in December, down 0.1 percentage points from the previous month, but still well above the Federal Reserve’s 2% target.
“Right now, I think inflation will continue to be close to our target. I think the stickiness that we saw in 2024 will disappear with each passing year,” he said. “So I’m probably more optimistic about falling inflation than some of my colleagues, and that’s what drives my outlook on the policy path.”
At the December meeting, FOMC members expected two rate cuts in 2025, but comments after the meeting noted that the Fed would take a cautious and patient approach.
The next Federal Open Market Committee (FOMC) meeting will be held on January 28-29, and markets are pricing in little likelihood of action.
“Well, in January, we need to see what happens… We’re really in no rush to do anything,” Waller said.
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