FED: Remarkably Dovish Waller Keeps Future 50bp Cuts On The Agenda

Gov Waller sounded remarkably dovish in a CNBC interview this morning, consistent with the Fed going 50bp at the next meeting in November:

• On the pace of future rate cuts, he said that it is really going to depend on the data. He can think of multiple scenarios: if data comes in fine, you can imagine going 25 at next meeting or two, though if the labor market worsens or inflation comes in softer than expected, they could be more aggressive. If inflation comes in stronger, could even pause.
• He said that inflation had been coming in lower than he had expected (equivalent to 1.8% annualized core PCE over the last 4 months) and when asked an open question about what risks he saw ahead, he highlighted inflation being too low, and noted the FOMC had a lot of room to go over the next 12 months.
• In other words he's concerned with inflation undershooting, not overshooting - he noted firms' limited pricing power and wage inflation coming down, and that inflation is potentially on a lower path that had previously been expected.
• A faster than expected drop in inflation would be enough for them to be aggressive in easing - which sounds like new language.
• On whether the 50bp cut meant the Fed saw a weak economy, he says his long-standing position is that they can cut rates even if the economy is fine, "and that's the position that we're in". He said he didn't think the Fed was behind the curve.
• Note that he emphasized weak core PCE and said that markets took the wrong signal from the high core CPI reading in blackout - it was the soft PCE implications that swayed him toward a 50bp vs 25bp cut this week.
• Overall he was very open to future 50bp cuts, and it's significant that such a senior Fed leader portrayed such a dovish outlook on the outlook. It is likely that at least one more 50bp cut is on the agenda in the FOMC's upcoming meetings, starting with November.