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Fed’s Waller needs ‘a few more months’ of progress on inflation before cutting rates
Fed Governor Chris Waller said Tuesday he favors keeping interest rates stable for longer and needs to see a few more months of favorable inflation data before cutting rates.
“While April’s inflation data represents progress, the progress was small,” Waller said in a speech in Washington.
“In the absence of a significant weakening in the labor market, I need to see a few more months of good inflation data before I feel comfortable supporting an easing of the monetary policy stance.”
See more information: What the Fed’s Rate Decision Means for Bank Accounts, CDs, Loans and Credit Cards
Waller said April’s latest reading of the Consumer Price Index was a “reassuring sign” but also gave it a grade of C+, calling the easing “so modest” that it hasn’t changed his view that more evidence of cooling of inflation.
The CPI on a “core” basis, which excludes food and energy prices, rose 3.6% year on year, a slowdown from the 3.8% increase seen in March. This followed a first quarter in which readings were consistently warmer than expected.
The Fed’s goal is to reduce inflation to 2%.
Fed Governor Christopher Waller. (Sarah Silbiger/Getty Images) (Sarah Silbiger via Getty Images)
Waller became the latest central bank official to emphasize a bullish stance for longer.
Fed Vice Chairman Philip Jefferson and Fed Supervision Vice Chairman Michael Barr, Monday both called for keeping rates where they areallowing more time for the restrictive policy to work.
Fed Chairman Jerome Powell made clear last week that he thinks the Fed will need more than a quarter of data to truly assess whether inflation is steadily falling to 2%. Waller seems to want more, noting that he would like to see “several” months of data.
This implies that it will take more than three inflation reports for the Fed to feel confident about cutting rates from their 23-year high, which increases the odds of a first rate cut in September at the earliest, if the data supports such a measure.
Investors are betting on odds of just over 50% for a rate cut in September, with increasingly slimmer odds for a second rate cut after that.
Waller said Tuesday that data on consumer spending and the labor market suggest rates are at appropriate levels now to reduce inflation and he thinks rate hikes are “probably unnecessary.”
Waller expects the economy to moderate based on the most recent economic data from last month.
He pointed to real GDP that slowed to 1.6% in the first quarter, retail sales that remained flat in April and revised downward in the previous two months, and credit card and auto loan delinquency rates which have risen above pre-pandemic levels.
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