The Federal Reserve is likely to be able to cut interest rates this year, but there is no need for policy to be “rushed,” Fed Gov. Christopher Waller said Tuesday.
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” Waller said in remarks to the Brookings Institution.
While in many past cycles, the Fed cut rates quickly and by large amounts, this year Waller said he sees “no reason to move as quickly or cut as rapidly as in the past.”
Waller said that he thinks the Fed’s interest-rate policy is now “set properly.”
The healthy state of the economy provides the Fed the flexibility to lower the policy rate when inflation comes down, he said. Otherwise, when adjusted for inflation, policy would be too tight.
The timing and number of rate cuts will be driven by incoming data, he said.
Markets have priced in seven rate cuts this year beginning with the March meeting.
Last week, Fed officials tried to push back on the expectations of quick and rapid cuts. But the market held its ground.
“To paraphrase a former head of the European Central Bank, the market heard the Fed’s comments last week but did not listen,” said Lou Crandall, chief economist at Wrightson ICAP.
Waller said he was pleased with the economy’s recent performance. Slowing GDP growth to a range between 1%-2% in the final three months of the year with the unemployment rate below 4% and inflation running close to 2% over the last 6 months “is almost as good as it gets,” he said.
“My outlook has made me more confident than I have been since 2021 that inflation is on a path to 2%,” he said.
There are questions about whether it will last.
“Concerns about the sustainability of these data trends requires changes in the path of policy to be carefully calibrated and not rushed,” Waller said.
In mid-February, the government will annual revisions to consumer inflation data. Last year, the annual update erased earlier data showing lower inflation, he noted.
“My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not hope,” he said.
Stocks
DJIA
SPX
were lower in early post-holiday trading on Tuesday while the 10-year Treasury yield
BX:TMUBMUSD10Y
rose to 3.99%.
