Fed’s Waller Advocates for Rate Reductions, Considers Larger Cuts

Federal Reserve Governor Christopher Waller stated on Friday that the time has arrived for the U.S. central bank to initiate a series of interest rate cuts beginning this month. He expressed a willingness to consider the size and pace of these reductions.

Waller mentioned, “If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings.” He emphasized his readiness to back larger cuts if warranted, reflecting on his previous support for aggressive rate hikes to combat rising inflation in 2022.

The Federal Reserve is anticipated to lower its policy rate, currently set between 5.25% and 5.50%, during the upcoming Sept 17-18 meeting. This expectation follows comments from Fed Chair Jerome Powell, who indicated that it was time to ease monetary policy due to positive developments in inflation and a cooling labor market.

Although Waller reiterated Powell’s sentiment, he articulated a stronger stance, suggesting the possibility of starting with a significant half-percentage-point cut in interest rates.

Recent data indicated that the average monthly job gain over three months is now 116,000, which is below the estimates needed to accommodate the growing population. Waller highlighted that this data, along with other recent statistics, underscores a continued moderation within the labor market.

While he noted that the economy does not appear to be moving toward a recession, he remarked, “The current batch of data no longer requires patience; it requires action,” signaling a shift in the Fed’s policy focus from inflation control to supporting full employment.

Waller acknowledged progress in reducing inflation, noting that wage growth has decreased in line with the Fed’s target of 2% inflation. He mentioned that inflation is moving in the right direction, with underlying inflation, as indicated by the core personal consumption expenditures price index, registering at 2.6% on a six-month annualized average and 1.7% on a three-month annualized average.

He concluded that while any forthcoming rate cuts would be executed cautiously, given the ongoing growth of the economy and employment alongside stable inflation, he remains prepared to act swiftly to bolster the economy if necessary.