The Fed’s Waller wants more evidence that inflation is cooling before cutting interest rates

Federal Reserve Governor Christopher Waller said Thursday that he will need to see more evidence of cooling inflation before he is willing to support interest rate cuts.

In a political speech delivered in Minneapolis that ends with the question, “What’s the hurry?” on the rate cut, the central bank official said the higher-than-expected inflation data for January raised questions about the direction prices are heading and how the Fed should respond.

“Last week’s elevated CPI inflation data may just be a bump in the road, but it may also be a warning that the considerable progress on inflation over the past year may be stalling,” Waller said in a commentary prepared.

While he said he still expects the Federal Open Market Committee to start lowering rates at some point this year, Waller said he sees “predominantly upside risks” to his expectation that inflation will fall to the 2% target. % of Fed.

He added that there is little sign that inflation will fall below 2% anytime soon based on strong 3.3% annualized growth in gross domestic product and employment, with little sign of a potential recession in the near future. view. Waller is a permanent voting member of the FOMC.

“This makes the decision to be patient in starting to ease monetary policy easier than it could be,” Waller said. “I will need to see at least a couple more months of inflation data before I can judge whether January was a bump or a pothole.”

The remarks are consistent with the central bank’s general sentiment that while further rate hikes are unlikely, the timing and pace of cuts are uncertain.

Inflation data Waller referenced shows the consumer price index rose 0.3% in January and 3.1% from the same period a year ago, both higher than expectations. Excluding food and energy, core CPI recorded an annual pace of 3.9%, after growing 0.4% on a monthly basis.

Reading the data, Waller said prices for core personal consumption expenditures, the Fed’s preferred inflation gauge, are likely to reflect a 2.8% increase over 12 months when they are released later this month.

Such strong data makes the case for waiting stronger, he said, noting that he will watch data on consumer spending, employment and wages and compensation for further clues about inflation. Retail sales unexpectedly fell 0.8% in January, while headcount growth rose by 353,000 in the month, well above expectations.

“I still expect it will be appropriate this year to start easing monetary policy, but the start of policy easing and the number of rate cuts will depend on the incoming data,” Waller said. “The bottom line is that I think the Committee can wait a little longer to ease monetary policy.”

Just a few weeks ago, markets were pricing in a high probability of a rate cut at the Fed’s next meeting, scheduled for March 19-20, according to bets on fed fund futures measured by the CME Group. However, this was reduced at the June meeting, with the probability that the FOMC could wait until July rising to around 1 in 3.

Earlier in the day, Fed Vice Chair Philip Jefferson was non-committal on the pace of cuts, saying only that he expects easing “by the end of the year” without providing a timetable.

Governor Lisa Cook also spoke and highlighted the progress the Fed has made in its efforts to reduce inflation without harming the economy.

However, even if he expects to cut again this year, Cook said he would “like to have more confidence” that inflation is on a sustainable path back to 2% before moving.