Christopher Waller sees faster inflation drop, supports 50 basis point rate cut amid shifting Fed strategy
Federal Reserve Governor Christopher Waller supported a half percentage point rate cut at the latest meeting, citing inflation's sharper-than-expected decline.
In an interview with CNBC, Waller said recent data on consumer and producer prices revealed core inflation, excluding food and energy, is running below 1.8 percent over the past four months, compared to the Fed’s target of 2 percent.
“That is what put me back a bit to say, wow, inflation is softening much faster than I thought it was going to, and that is what put me over the edge to say, look, I think 50 [basis points] is the right thing to do,” Waller explained during the interview.
Both the consumer and producer price indexes showed monthly increases of 0.2 percent, with the CPI running at a 2.5 percent rate over the past year.
However, Waller noted that recent data shows inflation trending even lower, providing the Federal Reserve more flexibility to ease its monetary policy and shift focus toward addressing a softening labour market.
Before the meeting, markets had largely anticipated a 25-basis point rate cut, but the Fed ultimately chose to reduce rates by 50 basis points, lowering its key borrowing rate to a range between 4.75 and 5 percent.
Waller noted, “The point is, we do have room to move, and that is what the committee is signaling.”
Along with this decision, individual officials hinted at the possibility of another half-point reduction later this year, followed by a full percentage point of cuts in 2025.
Federal Reserve Governor Michelle Bowman cast the only vote against the rate cut, preferring a smaller quarter-point reduction.
In her statement, Bowman acknowledged progress on lowering inflation but expressed concern that a larger cut might suggest “a premature declaration of victory on our price stability mandate.” This marked the first dissenting vote from a governor since 2005.
Waller discussed various potential paths for future rates, which would depend on upcoming economic data. His comments influenced futures market pricing, with traders estimating a 50-50 chance of another half-point reduction at the November 6-7 meeting, according to CME Group’s FedWatch.
As a former advocate of large rate hikes when inflation surged, Waller reaffirmed his commitment to the Fed's 2 percent inflation target. “If the data starts coming in soft and continues to come in soft, I would be much more willing to be aggressive on rate cuts to get inflation closer to our target,” he said.
The Federal Reserve is set to receive more inflation data next week, with the Commerce Department's August report on the personal consumption expenditures price index.
Fed Chair Jerome Powell indicated that economists expect the report to show inflation running at an annual rate of 2.2 percent, down from 3.3 percent a year ago.
