MNI: Waller Wants Several Good Inflation Prints Before Fed Cut

Recent U.S. economic data indicate high interest rates are helping to cool off demand and disinflation has likely resumed, but the Federal Reserve needs to see several more months of good inflation data before cutting rates, Governor Christopher Waller said Tuesday.

That would be largely in line with market expectations for a first cut in either September or November, according to futures pricing.

"The economy now seems to be evolving closer to what the committee expected," he said in remarks prepared for the Peterson Institute for International Economics in Washington.

"Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy."

C+ REPORT

After data on inflation and economic activity came in hotter than expected in the first three months of the year, last week's April CPI report was a "welcome relief," Waller said.

Headline CPI added 0.31% in the month, and the 12-month rate nudged down a tenth to 3.4%. Core CPI came in at 0.29%, dragging down the 12-month rate two-tenths to 3.6%. That likely translates to three-month annualized core PCE inflation falling 1 percentage point to about 3.4%, he noted. PCE inflation data for April is due May 31.

"This is not where I want to see inflation. But, after having these three-month readings accelerate in January, February, and March, I’m happy to see a reversal of this recent pattern. It leaves me hopeful that progress toward 2% inflation is back on track," he said. (See: MNI INTERVIEW: CPI Keeps Fed On Track For '24 Cuts-Ireland)

But the progress on inflation last month was "so modest that it did not change my view that I will need to see more evidence of moderating inflation before supporting any easing of monetary policy," Waller said, adding he would give the inflation report at C+, "far from failing but not stellar either."

HIKES NOT NEEDED

It would probably take hikes off the table though. "The data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary," he said.

"With the labor market as strong as it is, my focus remains bringing inflation down toward the FOMC’s 2% goal," Waller said. (See: MNI INTERVIEW: Labor Cracks To Drive Fed Cuts-Staffing Group)