MNI: Fed's Waller Leans Toward Another Cut At December Meeting

MNI (WASHINGTON) - Federal Reserve Governor Chris Waller said Monday that slowing inflation and a moderating but still-solid economy has him leaning towards another interest-rate cut at this month's FOMC meeting, continuing the work of returning monetary policy to a more neutral setting.

"Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2% over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting," he said in prepared remarks. "But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation."

Policy continues to be significantly restrictive and cutting again will only mean the Fed isn't pressing on the brake pedal quite as hard, Waller said. "I expect rate cuts to continue over the next year until we approach a more neutral setting of the policy rate" that has "still some distance to go."

Another factor that supports a further rate cut is that the labor market appears to finally be in balance, and "we should aim to keep it that way," Waller said. 

MMA FIGHTER INFLATION

The labor market is looser but still strong and recent data indicate that the progress of bringing inflation down may be stalling, he said. "Overall, I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out yet it keeps slipping out of my grasp at the last minute. But let me assure you that submission is inevitable—inflation isn’t getting out of the octagon."

Real GDP grew at a strong annual pace of 2.8% in the third quarter and household balance sheets continue to be in generally good shape, maintaining spending going forward, Waller told the American Institute for Economic Research Monetary Conference. He's expecting a rebound in payroll data in the November employment report that is due out later this week. 

Still, Waller acknowledged a case for skipping a rate cut at the next FOMC meeting. Monthly readings on inflation have moved up noticeably recently, and "we don’t know whether this uptick in inflation will persist, or reverse." Additionally, strikes and hurricanes have made recent labor market data cloudy, he added. (See: MNI INTERVIEW: Fed Closer To Slowing Rate Cut Pace - Kaplan)

"If the data we receive between today and the next meeting surprise in a way that suggests our forecasts of slowing inflation and a moderating but still-solid economy are wrong, then I will be supportive of holding the policy rate constant," Waller said.