Fed Governor Waller Urges 'Methodically And Carefully' Approach To Rate Cuts
2min read On Tuesday, Federal Reserve Governor Christopher Waller stated that the Fed should adopt a cautious and systematic approach when it comes to cutting interest rates, but if inflation does not rebound, rate cuts could commence as early as this year.
Waller mentioned during an online event hosted by the Brookings Institution on Tuesday, As long as inflation doesn't rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year.
When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully, the Governor added. In many previous cycles ... the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, ... I see no reason to move as quickly or cut as rapidly as in the past.
The timing of the rate cut and the actual decrease will depend on how the data comes in, he added.
The Fed governor made his most detailed remarks so far on the intention to relax policy this year. Although Waller is open-minded about cutting rates, his comments seem to contradict market expectations of up to six cuts this year.
US Treasury bond yields soared after Waller's speech. Traders have reduced the probability of an early rate cut in March and the forecast for the range of rate cuts throughout the year.
Waller's speech highlighted his wish to balance inflation risks, avoiding monetary policy being restrictive for too long, while also not cutting rates prematurely until it is certain that inflation can return to the 2% target. He believes that rate cuts could be justified only if consumer spending and inflation slow down, and monthly inflation data remain low.
Although Waller stated that he is growing more confident that policymakers are within striking distance to achieving the 2% inflation target, he and the Fed will still need more information in the coming months confirming or (conceivably) challenging the notion that inflation is moving down sustainably toward our inflation goal.
He also pointed out that if policymakers see evidence of the trends indicated in actual and inflation data continuing, then the central bank can proceedmethodically and carefully. The key thing is the economy is doing well. It is giving us the flexibility to move carefully and methodically. We can see how the data comes in, see if progress is being sustained, Waller said.
In addition, he added that once the Fed is relatively certain that inflation can approach the bank's 2% target sustainably, policymakers then can start considering how quickly to cut rates, or how long and how much to cut rates for.
Waller described the current financial conditions as restrictive and indicated that policymaking should be more cautious to avoid excessive tightening, but now, he believes the monetary policy is currently set properly at a restrictive level that should continue to put downward pressure on demand and allow the central bank to achieve its 2% goal.