Fed’s Waller Not in a Rush to Cut Interest Rates amid Persistent Inflation Data

Fed Governor Christopher Waller stated in a speech at the Economic Club of New York that recent disappointing inflation data supports the decision for the U.S. Federal Reserve to maintain its current short-term interest rate target for now. Despite this, Waller did not dismiss the possibility of reducing rates later in the year if inflation continues to decrease. He emphasized that there is no urgency to cut rates immediately and that it may be beneficial to keep the rate at its current level to ensure inflation stays on a path towards the targeted 2%.

Waller acknowledged that rate cuts are still a possibility, especially if there is further progress in lowering inflation. He mentioned that it might take a few more months of declining inflation to build confidence for rate cuts. However, he highlighted that the strong economy allows the Fed to assess the situation and consider the timing of any rate adjustments.

The delay in implementing rate cuts could impact the number and timing of rate cuts this year, according to Waller. He suggested that adjusting the frequency or timing of rate cuts in response to the latest data would be appropriate. Waller’s comments came after the recent Fed policy meeting where officials decided to maintain the current policy rate and reaffirmed expectations of three rate cuts in 2023 to combat inflation.

The unexpected strength in inflation has challenged the Fed’s forecast, leading to uncertainty about the feasibility of the projected rate cuts. Fed officials are monitoring the data to determine if the surge in inflation is temporary, which could influence the adjustment of rate cut expectations. Fed Chairman Jerome Powell emphasized the need to carefully assess the risks associated with both raising and lowering rates and highlighted the importance of the current economic strength in guiding policy decisions.

Waller expressed reluctance towards immediate rate cuts given the robust economic growth and labor market conditions. He emphasized the significant threshold for raising rates based on inflation trends. Waller indicated that the central issue for the Fed is not whether to raise rates but when to lower them, suggesting a cautious approach to adjusting interest rates as the economic situation evolves.