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Waller Probably Sees 2024 Cuts, But Needs "Several More...Good" CPI Prints

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Today's speech by Fed Governor Waller - typically one of the best bellwethers of the current thinking of FOMC leadership - seem quite hawkish at first glance, with most attention on the headline of needing "several more" months of inflationary progress before making the first cut. But the speech is entitled "Little by Little, Progress Seems to be Resuming" which captures his thinking that inflation is still on-track to reach 2%, just a little later than previously thought.

  • Indeed he seems to be optimistic that the hot Q1 inflation data is in the past, that progress "has likely resumed", and that rate hikes are still "probably unnecessary". Despite saying that "one month does not constitute a trend", he seems to be putting a fair bit of weight on the April CPI report.
  • Most of the speech is devoted to looking through a swathe of data which he sees indicating moderating activity and price pressures going forward, from ISM Services to JOLTS to the glass-half-full estimate that 3-month annualized core PCE declined to about 3.4% in April as January's high reading drops out.
  • The final paragraph sums it up in terms of what he is looking for - the "several months of good inflation data" criteria could be elaborated upon in the Q&A, but it suggests that he's not eyeing a cut until at least September - but, in the end, he does see cuts this year:
  • "The latest CPI data was a reassuring signal that inflation is not accelerating and data on spending and the labor market suggest to me that monetary policy is at an appropriate setting to put downward pressure on inflation. While the April inflation data represents progress, the amount of progress was small, reflected in the fact that I needed to report the monthly numbers to two decimal places to show progress. The economy now seems to be evolving closer to what the Committee expected. 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. What do I mean by good data? What grade do I need to give future inflation reports? I will keep that to myself for now but let's say that I look forward to the day when I don't have to go out two or three decimal places in the monthly inflation data to find the good news."
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Today's speech by Fed Governor Waller - typically one of the best bellwethers of the current thinking of FOMC leadership - seem quite hawkish at first glance, with most attention on the headline of needing "several more" months of inflationary progress before making the first cut. But the speech is entitled "Little by Little, Progress Seems to be Resuming" which captures his thinking that inflation is still on-track to reach 2%, just a little later than previously thought.

  • Indeed he seems to be optimistic that the hot Q1 inflation data is in the past, that progress "has likely resumed", and that rate hikes are still "probably unnecessary". Despite saying that "one month does not constitute a trend", he seems to be putting a fair bit of weight on the April CPI report.
  • Most of the speech is devoted to looking through a swathe of data which he sees indicating moderating activity and price pressures going forward, from ISM Services to JOLTS to the glass-half-full estimate that 3-month annualized core PCE declined to about 3.4% in April as January's high reading drops out.
  • The final paragraph sums it up in terms of what he is looking for - the "several months of good inflation data" criteria could be elaborated upon in the Q&A, but it suggests that he's not eyeing a cut until at least September - but, in the end, he does see cuts this year:
  • "The latest CPI data was a reassuring signal that inflation is not accelerating and data on spending and the labor market suggest to me that monetary policy is at an appropriate setting to put downward pressure on inflation. While the April inflation data represents progress, the amount of progress was small, reflected in the fact that I needed to report the monthly numbers to two decimal places to show progress. The economy now seems to be evolving closer to what the Committee expected. 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. What do I mean by good data? What grade do I need to give future inflation reports? I will keep that to myself for now but let's say that I look forward to the day when I don't have to go out two or three decimal places in the monthly inflation data to find the good news."