Fed’s Waller wants more evidence inflation is cooling before cutting interest rates

Federal
Reserve
Governor
Christopher
Waller
said
Thursday
he
will
need
to
see
more
evidence
that
inflation
is
cooling
before
he
is
willing
to
support
interest
rate
cuts.

In
a
policy
speech
delivered
in
Minneapolis
that
concludes
with
the
question,
“What’s
the
rush?”
on
cutting
rates,
the
central
bank
official
said
higher-than-expected

inflation
readings
for
January
raised
questions
on
where
prices
are
heading
and
how
the
Fed
should
respond.

“Last
week’s
high
reading
on
CPI
inflation
may
just
be
a
bump
in
the
road,
but
it
also
may
be
a
warning
that
the
considerable
progress
on
inflation
over
the
past
year
may
be
stalling,”
Waller
said
in
prepared
remarks.

While
he
said
he
still
expects
the
Federal
Open
Market
Committee
to
begin
lowering
rates
at
some
point
this
year,
Waller
said
he
sees
“predominately
upside
risks”
to
his
expectation
that
inflation
will
fall
to
the
Fed’s
2%
goal.

He
added
that
there
are
few
signs
inflation
will
fall
below
2%
anytime
soon
based
on

strong
3.3%
annualized
growth
in
gross
domestic
product
and
employment,
with
few
signs
of
a
potential
recession
in
sight.
Waller
is
a
permanent
voting
member
on
the
FOMC.

“That
makes
the
decision
to
be
patient
on
beginning
to
ease
policy
simpler
than
it
might
be,”
Waller
said.
“I
am
going
to
need
to
see
at
least
another
couple
more
months
of
inflation
data
before
I
can
judge
whether
January
was
a
speed
bump
or
a
pothole.”

The
remarks
are
consistent
with
a
general
sentiment

at
the
central
bank
that
while
further
rate
hikes
are
unlikely,
the
timing
and
pace
of
cuts
is
uncertain.

The
inflation
data
Waller
referenced
showed
the

consumer
price
index
rose
0.3%
in
January
and
was
up
3.1%
from
the
same
period
a
year
ago,
both
higher
than
expected.
Excluding
food
and
energy,
core
CPI
ran
at
a
3.9%
annual
pace,
having
risen
0.4%
on
the
month.

Reading
through
the
data,
Waller
said
it’s
likely
that
core
personal
consumption
expenditures
prices,
the
Fed’s
preferred
inflation
gauge,
will
reflect
a
2.8%
12-month
gain
when
released
later
this
month.

Such
elevated
readings
make
the
case
stronger
for
waiting,
he
said,
noting
that
he
will
be
watching
data
on
consumer
spending,
employment
and
wages
and
compensation
for
further
clues
on
inflation.

Retail
sales
fell
an
unexpected
0.8%
in
January
while

payroll
growth
surged
by
353,000
for
the
month,
well
above
expectations.

“I
still
expect
it
will
be
appropriate
sometime
this
year
to
begin
easing
monetary
policy,
but
the
start
of
policy
easing
and
number
of
rate
cuts
will
depend
on
the
incoming
data,”
Waller
said.
“The
upshot
is
that
I
believe
the
Committee
can
wait
a
little
longer
to
ease
monetary
policy.”

Markets
just
a
few
weeks
ago
had
been
pricing
in
a
high
probability
of
a
rate
cut
when
the
Fed
next
meets
on
March
19-20,
according
to
fed
funds
futures
bets
gauged
by
the
CME
Group.
However,
that
has
been
pared
back
to
the
June
meeting,
with
the
probability
rising
to
about
1-in-3
that
the
FOMC
may
even
wait
until
July.

Earlier
in
the
day,
Fed
Vice
Chair
Philip
Jefferson
was
noncommittal
on
the
pace
of
cuts,
saying
only
he
expects
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
bring
down
inflation
without
tanking
the
economy.

However,
while
she
also
expects
to
cut
this
year,
Cook
said
she
“would
like
to
have
greater
confidence”
that
inflation
is
on
a
sustainable
path
back
to
2%
before
moving.