A Fed governor reiterates that interest rate cuts are coming
A prominent Federal Reserve official on Tuesday made a case for methodically cutting interest rates sometime this year as the economy balances and inflation cools — though he acknowledged that the timing of those cuts remained uncertain.
Christopher Waller, one of seven Washington-based Fed officials and one of 12 policymakers allowed to vote at the meetings, said during a speech at the Brookings Institution on Tuesday that he saw a case for a rate cut in 2024.
“The data we have received in recent months allows the committee to consider cutting the policy rate in 2024,” Mr Waller said. While noting that the risk of higher inflation remains, he said: “I am more confident that the economy can continue on its current trajectory.”
Mr. Waller suggested that the Fed should cut rates if inflation falls. Because interest rates do not take into account price changes, so-called real interest rates, which are adjusted for inflation, would otherwise rise as inflation falls, placing an increasing burden on the economy.
“The healthy state of the economy provides the flexibility to lower” the policy rate “to keep the real policy rate at an appropriate level of tightness,” Mr. Waller said in his speech.
The Fed governor added that when the policy rate is cut, “it can and should be cut methodically and carefully.”
US central bankers are considering their next policy steps after two years of battling high inflation. Officials have raised borrowing costs from near zero in March 2022 to a range of 5.25 to 5.5 percent starting this summer. But now inflation is steadily declining, and central bankers are starting to think about when and how much to cut rates.
While officials want to ensure they can completely eradicate rapid inflation, they also want to avoid putting so much pressure on the economy from higher borrowing costs that they trigger a painful recession.
Investors have started subscribing good chance of interest rate cuts as early as March, though some economists have warned — and officials have hinted — that they may view an impending move as too sure of a gamble.
“March is probably too early for a rate cut in my view,” said Loretta Mester, president of the Federal Reserve Bank of Cleveland. recently said in a interview with Bloomberg Television.
Asked on Tuesday whether he would rather wait too long than make cuts so quickly, Mr Waller said that “in the grand scheme of things, six weeks down the line, it's quite hard to believe that this is going to work. ” have a huge impact on the state of the economy.”
Mr. Waller said that while his view of the policy outlook was “consistent” with the Fed's December projection that it would cut rates three times this year, “the timing of the cuts and the actual number of cuts in 2024 will depend on the upcoming interest rate cuts.” facts.”
He said the timing of the first rate cut would depend on the Fed's policy-setting committee.
Officials want to see evidence that progress is continuing, he said, “and I believe it will, but we need to see that before we make any decisions,” he said.
Mr Waller suggested he would particularly keep a close eye on revisions to inflation data due to be released in early February.
“My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not on hope,” he said.