MNI: Fed’s Waller On Rate Cuts – ‘What’s The Rush?’

The Federal Reserve can take its time as it considers when to begin cutting interest rates because the economy and employment remain robust, Fed Governor Christopher Waller said Thursday.

A hotter-than-expected January CPI reading was a reminder that the path back to the central bank’s 2% inflation target will not be a straight one, he said, adding that he needs “at least another couple of months” of additional data on inflation before making a judgment as to whether disinflation is stalling.

“While I believe inflation is likely on track to reach 2% in a sustainable manner, I am going to need to see more data to sort out whether January’s CPI inflation was more noise than signal,” Waller said in prepared remarks.

“This means waiting longer before I have enough confidence that beginning to cut rates will keep us on a path to 2% inflation. Fortunately, the strength of output and employment growth means that there is no great urgency in easing policy, which I still expect we will do this year.” (See: MNI INTERVIEW: Fed Could Cut As Early As June - Quarles)

WATCHING WAGES

Waller said he’ll be watching for further softening in wage growth as he seeks assurances that the lower inflation trend is intact. “It is true that there was some moderation in average wages over the second half of last year, but I still consider them to be somewhat elevated to achieve our 2% goal,” he said at a University of St. Thomas event.

“We need to verify that the progress on inflation we saw in the last half of 2023 will continue and this means there is no rush to begin cutting interest rates to normalize monetary policy,” the Fed governor said.

Waller still sees a greater risk that inflation will overshoot the Fed’s 2% target than that it will undershoot it. “I see predominately upside risks to my general expectation that inflation will continue to move toward the FOMC’s 2% goal,” he said.

The official expressed relief that recent benchmark revisions to CPI inflation data did not show any substantive change in the outlook. “It is comforting to know that the progress we made was real and not a mirage."