Influential governor Christopher Waller says inflation is falling more quickly than he expected
A senior official from the Federal Reserve has indicated his willingness to endorse more substantial interest rate reductions from the US central bank should economic indicators continue to decline, noting that inflation is decreasing at a rate more rapid than anticipated.
Christopher Waller, a member of the Fed’s governing body, expressed in a CNBC interview on Friday that if economic data continues to show weakness, he would be inclined to support aggressive rate cuts.
He further mentioned that if the data appears to be “acceptable,” he could envision the possibility of the Fed implementing a quarter-point reduction at its upcoming meeting in November, which is scheduled for the day following the US presidential election on November 5.
Waller’s remarks, coming shortly after the central bank initiated its first easing cycle in over four years with an unusually large half-point interest rate cut—bringing the Fed’s benchmark rate to a range of 4.75 percent to 5 percent—highlight the Fed’s determination to prevent a recession following the most severe inflation crisis in decades, a challenge many deemed insurmountable at the crisis’s onset.
On Wednesday, Fed Chair Jay Powell stated that the significant rate cut was intended to bolster the US economy’s resilience, rather than a reaction to a crisis that would typically warrant such drastic measures.
Waller reiterated this perspective on Friday, asserting that in a “solid” labor market, the Fed is not lagging in providing relief to borrowers.
Waller was among the officials who supported the half-point rate cut, although his colleague Michelle Bowman opposed it.
Bowman articulated her preference for a quarter-point reduction on Friday, asserting that a “measured” approach would help to “avoid unnecessarily stoking demand.”
She expressed concern that a more substantial policy action by the committee might be perceived as an untimely assertion of success regarding the price stability mandate, noting that inflation continues to exceed the Federal Reserve’s 2 percent target while the economy remains “strong.”
Waller remarked that recent data indicated inflation was “softening much faster than I anticipated,” leading him to conclude that “50 basis points is the appropriate course of action.”
Prior to the quiet period preceding this week’s Federal Reserve meeting, Waller had indicated he was “open-minded” about the potential for a larger cut, although he emphasized that this would depend on the emergence of further economic weakness.
Powell characterized the proposed cut on Wednesday as a “recalibration” of the Federal Reserve’s monetary policy framework in light of declining inflation and a weakening labor market.
Most officials anticipate that the central bank will implement an additional half-percentage point reduction over the remaining two meetings of the year.
Powell underscored on Wednesday that the half-point cut should not be viewed as the Federal Reserve’s “new pace,” implying that a quarter-point reduction is more likely in future decisions.
There exists considerable variation among officials’ projections for interest rates this year and into 2025, with many forecasting a policy rate decline to between 3.25 percent and 3.5 percent. This broad range of estimates suggests that upcoming meetings will likely mirror the close deliberations of the recent one.
“We do have room to move, and that is what the committee is signalling through 2025,” Waller said.