Federal Reserve Governor Christopher Waller recently made comments suggesting that he believes further interest rate increases may not be necessary due to easing inflation. While Waller acknowledged that central bankers should never say never, he pointed to various data indicating that inflation is not accelerating.
Impact of Fed’s Higher Rates
Waller highlighted the impact of the Fed’s higher rates, noting that they have helped ease some of the demand contributing to the highest inflation rates in over 40 years. He referenced flattening retail sales and the cooling of both the manufacturing and services sectors as evidence of this.
Despite solid payroll gains, Waller expressed concerns about the labor market showing signs of loosening. While the economy appears to be evolving closer to what the Committee expected, Waller emphasized the need for more good inflation data before considering easing monetary policy.
Reaction to Consumer Price Index
April’s consumer price index showed inflation running at a 3.4% rate from a year ago, which was slightly down from March. Waller described the report as a “welcome relief,” but noted that more evidence of moderating inflation is needed before supporting any easing of monetary policy.
Market expectations for monetary policy have shifted throughout the year. Initially, futures market traders anticipated at least six rate cuts starting in March. However, higher-than-expected inflation data led to a change in outlook, with the first cut not expected until September at the earliest.
Waller’s Stance
As a permanent voting member of the rate-setting Federal Open Market Committee, Waller refrained from providing specific expectations on the timing or extent of rate cuts. He indicated that he would need to see further progress on future inflation reports before considering any policy changes.
Despite Waller’s cautious approach to interest rates, his remarks suggest a nuanced understanding of the complex factors influencing inflation and monetary policy. As the Fed continues to monitor economic data and trends, the path forward regarding interest rates remains uncertain. It is clear that Waller’s willingness to adapt his stance based on evolving conditions underscores the importance of data-driven decision-making in shaping monetary policy.