MNI: Waller Says Fed May Need To Hold Rates Steady For Longer

Federal Reserve Governor Christopher Waller said Wednesday the Fed should wait a "couple months" to get a better understanding of the trajectory of inflation, but he still expects the central bank to begin reducing the target range for the federal funds rate this year.

"In my view, it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data. This reflects the reality of managing an outlook in real time as data comes in," he said in prepared remarks. "Subsequent data may well alter this outlook again, but we shall see. Based on what we know now, there is no urgency in taking that step."

Waller said with February's consumer price index and producer price index inflation data in hand, some forecasts are predicting core PCE inflation may be revised up for January and is expected to come in at 0.3% for February. "Adding this new data to what we saw earlier in the year reinforces my view that there is no rush to cut the policy rate."

"Indeed, it tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%," Waller said. (See: MNI INTERVIEW: Fed Can't Let Guard Down On Inflation - Weinberg)

EASING THIS YEAR

"I continue to believe that further progress will make it appropriate for the FOMC to begin reducing the target range for the federal funds rate this year. But until that progress materializes, I am not ready to take that step," he said. "Fortunately, the strength of the U.S. economy and resilience of the labor market mean the risk of waiting a little longer to ease policy is small and significantly lower than acting too soon and possibly squandering our progress on inflation."

The Fed governor said he sees economic output and the labor market showing continued strength, while progress in reducing inflation has slowed. Wage pressures and nominal wage growth have continued to ease, he said.

"As a result, in the absence of an unexpected and material deterioration in the economy, I am going to need to see at least a couple months of better inflation data before I have enough confidence that beginning to cut rates will keep the economy on a path to 2% inflation," Waller told the Economic Club of New York.