Fed Governor Sees Room for Rate Cuts Amid Easing Inflation
The Federal Reserve may have more wiggle room to cut interest rates sooner than expected, according to Governor Christopher Waller. In a recent interview, Waller expressed optimism that inflation is nearing the Fed’s 2% target, paving the way for potential rate reductions in the first half of the year.
Inflation on the Decline
Waller cited estimates showing that the Personal Consumption Expenditures Price Index, excluding food and energy costs, has been hovering around the Fed’s target for six of the past eight months. This downward trend in inflation suggests that the central bank may not need to keep rates as high for as long.
Rate Cuts on the Horizon
The Fed governor hinted that as many as three or four quarter-percentage-point rate reductions could still be possible this year, depending on how inflation behaves. Moreover, Waller didn’t rule out the possibility of restarting rate cuts as early as the Fed’s March 18-19 policy meeting. “If we make a lot of progress, you could do more,” he said.
Market Expectations Shift
Waller’s comments, made near the Fed’s blackout period on public comments ahead of the Jan. 28-29 meeting, have already shifted market expectations. Investors are now betting on two rate cuts as more likely, with a good chance the first comes as early as May. Bond yields have also fallen in response to the news.
A New Path Forward
The Fed is still expected to hold its benchmark overnight rate steady in the 4.25%-4.50% range at its meeting later this month. However, Waller’s dovish narrative has opened up the possibility of a more aggressive rate-cutting path in the coming months. As the central bank navigates the incoming Trump administration, one thing is clear: inflation will remain a key factor in shaping monetary policy.
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