Another Federal Reserve governor calls for caution regarding further interest rate cuts!

Federal Reserve Governor Christopher Waller stated that policymakers must pay attention to both the Fed's inflation and employment targets, noting that the labor market is cooling and the pace at which inflation is declining towards the Fed's 2% target has slowed.

In prepared remarks on Thursday, Waller said, “The combination of persistent but slowing anti-inflation trends and a cooling labor market means we need to continue to focus on both aspects of our mission.”

She stated, “If there are any risks that hinder progress or re-accelerate inflation, pausing interest rate cuts would be appropriate. But if the labor market suddenly slows, we should continue to gradually lower the policy interest rate.”

The Fed lowered borrowing costs by 25 basis points last week, following a larger cut of 50 basis points in September.

Given the strong economy, ongoing inflation concerns, and general uncertainty, several Fed policymakers urged caution regarding further rate cuts in their comments this week.

While Waller indicated that slowing wage growth and anchored inflation expectations might allow for further deceleration in price growth, she pointed out that persistent inflation in housing and other categories poses risks to further progress in anti-inflation efforts.

Data released on Wednesday showed that the core CPI index, which excludes food and energy and measures underlying inflation, rose 0.3% month-on-month for the third consecutive month. The overall CPI year-on-year growth accelerated to 2.6%.

In light of this data, Waller stated that she expects the Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, to rise 2.3% year-on-year, with core PCE expected to rise 2.8% year-on-year. The PCE data for October will be released later this month.

Much of Waller's remarks focused on the independence of the central bank and its importance in achieving favorable economic outcomes.

She said, “In other economies, transparency is also seen as the foundation of monetary policy independence, and monetary policy independence is increasingly viewed as leading to better policy decisions that are more focused on the long-term health of the economy.”

Her comments came amid questions about whether Trump, if he wins the election, would attempt to limit the Fed's independence. Fed Chairman Jerome Powell made it clear last week that he would not resign if Trump asked him to and insisted that the new president does not have the power to fire him or other senior Fed officials