Fed’s Waller Signals Cautious Rate Cuts in 2025 as Inflation Nears 2% Target
Federal Reserve Governor Christopher Waller emphasizes a cautious approach to interest rate cuts in 2025, highlighting that while inflation is approaching the 2% target, any reductions should be carefully timed and data-driven.
Highlights
- Federal Reserve Governor Christopher Waller notes inflation is nearing the 2% target but urges prudence in implementing interest rate cuts.
- Recent inflation trends over the past six months indicate progress toward the Fed’s goal.
- The upcoming Consumer Price Index release will be crucial in assessing inflation’s trajectory.
Federal Reserve Governor Christopher Waller indicated on Tuesday that the central bank may soon consider cutting interest rates, contingent upon sustained evidence of declining inflation.
Waller pointed out that inflation has recently approached the Fed’s 2% target, suggesting the possibility of rate reductions starting in 2024. However, he stressed the importance of a measured approach, cautioning against hasty moves after past instances where inflation appeared to decline only to rebound following seasonal adjustments.
“We are close to our inflation goal, but I will require additional data in the upcoming months to confirm whether inflation is consistently moving downward,” Waller stated during his speech at the Brookings Institution.
His remarks come amid mixed signals from Federal Reserve officials regarding the timing of rate cuts. While Chair Jerome Powell has hinted at potential reductions in 2024, minutes from the December meeting revealed greater internal debate than previously understood.
Following the last Federal Open Market Committee meeting, Fed officials have sought to temper market expectations after investors reacted strongly to rate-cut prospects. Waller has attracted attention for his prior advocacy of swift rate hikes.
Deutsche Bank analysts noted, “Waller’s dovish shift in late November was pivotal to the Fed’s December pivot and fueled market anticipation for rate cuts in early 2024. Both Waller and Powell played key roles in lowering the median policy rate forecast for 2024.”
On Tuesday, Waller highlighted that recent spikes in inflation and employment figures do not fully represent broader economic trends. He described the December jobs report’s stronger-than-expected job creation as “largely noise,” suggesting that labor market supply and demand are moving toward equilibrium.
Despite a December uptick in inflation, Waller underscored positive long-term trends, citing the Personal Consumption Expenditures (PCE) core inflation index’s six-month average being close to the 2% target, contrasting with less favorable year-over-year data.
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