Fed Governor Waller wants ‘several months’ of good inflation data before lowering rates

KEY POINTS

• Fed Governor Christopher Waller said Tuesday that he does not think further interest rate increases will be necessary.
• However, cuts are probably “several months” away, the central bank official said during a speech in Washington.

Federal Reserve Governor Christopher Waller, citing a string of data showing that inflation appears to be easing, said Tuesday that he does not think further interest rate increases will be necessary.

However, the policymaker added he will need some convincing before he backs cuts anytime soon.

“Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary,” said Waller, who has recently been hawkish, meaning he supports tighter monetary policy.

The comments came in prepared remarks for an appearance before the Peterson Institute for International Economics in Washington.

Waller pointed to a string of recent data, from flattening retail sales to cooling in both the manufacturing and services sectors, to suggest that the Fed’s higher rates have helped ease some of the demand that had contributed to the highest inflation rates in more than 40 years.

Though payroll gains have been solid, internal metrics, such as the rate at which workers are leaving their jobs, show that the ultra-tight labor market that had driven up wages last a level consistent with the Fed’s 2% inflation goal has displayed signs of loosening, he added.

Yet Waller, who as a governor is a permanent voting member of the rate-setting Federal Open Market Committee, said he’s not ready to back interest rate cuts.

“The economy now seems to be evolving closer to what the Committee expected,” he said. “Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”

April’s consumer price index showed inflation running at a 3.4% rate from a year ago, down slightly from March, with the 0.3% monthly increase slightly below what Wall Street economists had been expecting.

The Labor Department report was “a welcome relief,” Waller said, though he added that “the progress was so modest that it did not change my view that I will need to see more evidence of moderating inflation before supporting any easing of monetary policy.” He gave the report a C-plus grade.

Markets have had to recalibrate their expectations for monetary policy this year.

In the early months, futures market traders priced in at least six rate cuts this year starting in March. However, a string of higher-than-expected inflation data changed that outlook to where the first cut is not expected to happen until September at the earliest — with at most two reductions of a quarter percentage point before the end of the year, according to the CME Group’s FedWatch Tool.

Waller did not give his expectations on the timing or extent of cuts and said that he would “keep that to myself for now” on what specific progress he wants to see on future inflation reports.