MNI: Fed's Waller-Policy Steady Until Inflation Bumps Cleared
MNI (WASHINGTON) - Federal Reserve officials can afford to keep interest rates on hold while they wait to see if price pressures will continue to abate following a recent leveling off of inflation above the central bank's target, Fed Governor Chris Waller said Monday.
Waller said he's watching to see whether bumpy inflation figures are related to seasonal factors that will abate, as they did last year, or become something more pernicious.
"If this winter-time lull in progress is temporary, as it was last year, then further policy easing will be appropriate. But until that is clear, I favor holding the policy rate steady," Waller said in a speech in Sydney, Australia.
Waller said he believes the current setting of monetary policy, with the federal funds rate at 4.25%-4.5%, is somewhat restrictive, and thus still putting downward pressure on inflation.
"Inflation is still meaningfully above our target, and progress has been excruciatingly slow over the last year. This tells me that we
should currently have a restrictive setting of policy, as we do," he said.
"The data are not supporting a reduction in the policy rate at this time. But if 2025 plays out like 2024, rate cuts would be appropriate at some point this year," he said.
PCE ESTIMATES
Waller said estimates for PCE inflation for January are about 0.3% and for core PCE is around 0.25%, leaving the 12-month and 6-month average core PCE readings around 2.6% and 2.4% respectively.
"These rates are lower than where they stood in January 2024, which is good, but progress has been slower than I expected on reducing inflation to our 2% target," he said. (See MNI: Fed In Holding Pattern As Inflation To Stay High-Ex-Staff)
The labor market is in a "sweet spot," the governor added, while economic growth remains solid.
Waller said he does not expect the Trump administration's tariff policies will not have a major effect on inflation.
"My baseline view is that any imposition of tariffs will only modestly increase prices and in a nonpersistent manner. So I favor looking through these effects when setting monetary policy to the best of our ability," he said.