Fed Governor Waller: Fed may cut rates soon, making steady progress in lowering inflation
Federal Reserve Governor Waller hinted that as long as there are no major surprises in inflation and employment, the Fed will soon cut interest rates. Waller stated that it would be reasonable to cut interest rates if inflation data becomes more positive or moderate. He believes that the possibility of unexpected inflation strength is minimal. This statement has attracted attention because Waller is one of the more hawkish members
According to the Wise Finance APP, Federal Reserve Governor Christopher Waller hinted on Wednesday that the Fed will soon cut interest rates as long as there are no major surprises in inflation and employment. Waller stated at a meeting, "I believe the current data is consistent with expectations of a soft landing, and I will be looking for data in the coming months to support this view. Therefore, although I do not think we have reached the ultimate goal, I do believe we are approaching a time when it is reasonable to lower policy rates."
Like other policymakers, Waller's remarks suggest that the Federal Open Market Committee (FOMC) is unlikely to cut interest rates at its policy meeting later this month, with a higher likelihood of a rate cut in September. Recent data over the past few months has shown that after unexpectedly rising in the first quarter of 2024, US inflation has now eased, making Fed officials more optimistic. Against the backdrop of declining inflation and the Fed's dovish tone, the CME FedWatch Tool showed on Tuesday that the market was pricing in a 100% chance of a Fed rate cut in September.
Waller outlined three possible scenarios for the future: the first scenario is that inflation data becomes more positive and proves that a rate cut in the "not too distant future" is reasonable; the second is that inflation data fluctuates but still points to moderation; and the third scenario is that inflation rises, which would force the Fed to take a more hawkish policy stance.
Among these three scenarios, Waller believes that the third scenario - unexpectedly strong inflation - is the least likely to occur. Waller said, "Given that I believe the first two scenarios are more likely to occur, I think the time for a rate cut is approaching." However, Waller pointed out that while financial markets are closely watching the possible date of a Fed rate cut, FOMC members are not.
Waller's remarks on Wednesday are particularly noteworthy because he is one of the more hawkish FOMC members this year, advocating for a tightening of monetary policy in the face of concerns that inflation may be more persistent than expected.
In May of this year, Waller stated that he expected a rate cut to take place "in a few months" as he awaited more convincing data indicating that inflation was receding. Waller's speech on Wednesday indicates that this threshold is about to be reached.
Waller stated that the labor market is "in a good place," with employment growing and wage growth cooling off. Meanwhile, US June CPI data came in below expectations across the board. He said, "After the disappointing data at the beginning of 2024, we now have several months of data that are more consistent with the steady progress we saw last year in reducing inflation, and consistent with the FOMC's price stability goal." "More and more evidence suggests that the inflation data in the first quarter may have been an anomaly, and the impact of tightening monetary policy has curbed high inflation.
Waller's remarks are in line with those of New York Fed President Williams on Wednesday. Williams pointed out that inflation data is "moving in the right direction and quite consistent," and is "bringing us closer to the anti-inflation trend we expect."