Christopher Waller, governor of the Federal Reserve Bank, during a Fed Listens event in Washington, DC, on Friday, September 23, 2022.
Al Drago | Bloomberg | Getty Images
Federal Reserve Governor Christopher Waller said on Thursday that he would need to see more evidence that inflation is falling before he is willing to support rate cuts.
In a political speech delivered in Minneapolis that concludes with the question, “What’s the rush?” on the rate cut, the central bank official said the higher-than-expected inflation readings in January raised questions about where prices are headed and how the Fed should respond.
“Last week’s high CPI inflation reading may just be a bump in the road, but it may also be a warning that the significant progress in inflation over the past year may be delayed,” Waller said in prepared remarks.
While he said he still expects the Federal Open Market Committee to start cutting interest rates sometime this year, Waller said he sees “mostly upside risks” to his expectations that inflation will fall to the Fed’s 2 percent target.
He added that there was little sign that inflation would fall below 2% soon based on strong annual growth of 3.3% in GDP and employment, with little sign of a possible slowdown. Waller is a permanent voting member of the FOMC.
“This makes the decision to be patient when we start to ease policy simpler than it could be,” Waller said. “I will need to see at least two more months of inflation data before I can judge whether January was a blip or a puddle.”
The remarks are consistent with the central bank’s general view that while further rate hikes are unlikely, the timing and pace of cuts are uncertain.
Inflation data reported by Waller showed the consumer price index rose 0.3 percent in January and rose 3.1 percent from a year earlier, both higher than expected. Excluding food and energy, the core CPI ran at an annual rate of 3.9%, up 0.4% month-on-month.
Reading the data, Waller said it was likely that core personal consumption expenditures, the Fed’s preferred gauge of inflation, would reflect a 2.8% 12-month gain when released later this month.
Such high readings bolster the case for waiting, he said, noting that he would watch data on consumer spending, employment and wages and compensation for further signs of inflation. Retail sales unexpectedly fell 0.8% in January, while payrolls rose by 353,000 in the month, well above expectations.
“I still expect that it will be appropriate at some point this year to begin easing monetary policy, but the initiation of policy easing and the number of rate cuts will depend on incoming data,” Waller said. “The upshot is that I think the Commission may have to wait a little longer to ease monetary policy.”
Markets just a few weeks ago priced in a strong chance of a rate cut at the next Fed meeting on March 19-20, according to Fed Funds futures as measured by the CME Group. However, this was pared down at the June meeting, with the odds rising to about 1 in 3 that the FOMC might even wait until July.
Earlier in the day, Fed Vice Chairman Philip Jefferson was noncommittal on the pace of cuts, saying only that he expects an easing “later this year” without providing a timetable.
Governor Lisa Cook also spoke and noted the progress the Fed has made in its efforts to reduce inflation without hurting the economy.
But while she also expects a reduction this year, Cook said she would “like to have more confidence” that inflation is on a sustainable path back to 2% before moving on.