U.S. Federal Reserve Governor Christopher Waller during a Fed Listens event in Washington, DC, on Friday, September 23, 2022.
Al Drago | Bloomberg | Getty Images
Federal Reserve Governor Christopher Waller said Thursday he needs to see more evidence that inflation is cooling before he is willing to support interest rate cuts.
In a policy speech in Minneapolis that ends with the question, “What’s the rush?” Regarding rate cuts, the central bank official said higher-than-expected inflation readings for January raise questions about where prices are headed and how the Fed will should react.
“Last week’s high reading of CPI inflation may be just a hindrance, but it could also be a warning that the significant progress on inflation over the past year may be stalling,” Waller said in prepared remarks.
While he said he still expects the Federal Open Market Committee to begin cutting interest rates sometime this year, Waller said he sees “predominantly upside risks” to his expectation that inflation will rise to the 2 percent target the Fed will fall.
He added that with strong annual gross domestic product and employment growth of 3.3%, there was little sign that inflation would fall below 2% any time soon, and there were few signs of a possible recession in sight. Waller is a permanent voting member of the FOMC.
“That makes the decision to be patient with policy easing easier than it could be,” Waller said. “I need to see inflation data for at least a few more months before I can judge whether January was a brake pedal or a pothole.”
The comments are in line with the central bank’s general view that while further rate hikes are unlikely, the timing and pace of rate cuts are uncertain.
The inflation data Waller was referring to showed the consumer price index rose 0.3% in January and rose 3.1% from the same period last year, both higher than expected. Excluding food and energy, core CPI rose 3.9% annually, after rising 0.4% month-over-month.
Reading through the data, Waller said it was likely that core personal consumption expenditure prices, the Fed’s preferred indicator of inflation, would reflect a 12-month increase of 2.8% when it is released later this month.
Such elevated readings suggest a wait-and-see approach, he said, noting that he will keep an eye on consumer spending, employment and wages and compensation data for further clues on inflation. Retail sales unexpectedly fell 0.8% in January, while wage growth rose by 353,000 for the month, well above expectations.
“I still expect it will be appropriate to begin easing monetary policy at some point this year, but the start of monetary easing and the number of rate cuts will depend on the data that comes in,” Waller said. “The bottom line is that I think the committee can wait a little longer to ease monetary policy.”
Just a few weeks ago, markets were pricing in the high probability of a rate cut at the next Fed meeting on March 19-20, according to Fed fund futures bets tracked by CME Group. However, this has been limited to the June meeting, with the odds increasing to around 1 in 3 that the FOMC could even wait until July.
Earlier in the day, Fed Vice Chairman Philip Jefferson was noncommittal about the pace of cuts, saying only that he expected easing “later this year,” without giving a timeline.
Gov. Lisa Cook also spoke, noting the progress the Fed has made in its efforts to reduce inflation without slowing the economy.
Although she expects a cut again this year, Cook said she “wants greater confidence” that inflation is on a sustainable path back to 2% before it changes.
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2024-02-23 00:35:39
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