Fed's Waller: More Cuts Likely, Timing Depends on Inflation Progress

In a recent speech, Federal Reserve Board member Christopher Waller hinted at further interest rate cuts in 2025, while acknowledging that the pace of these cuts will depend on the progress made in reducing inflation. Waller's remarks come as the Fed grapples with elevated inflation and the potential impact of incoming Trump administration policies, such as widespread tariffs.

Waller, a top policymaker at the U.S. Federal Reserve, expressed his support for cutting interest rates this year despite the current inflationary environment. He expects inflation to move closer to the Fed's 2% target in the coming months and believes that tariffs are unlikely to have a significant or persistent effect on inflation this year. Waller's stance aligns with the broader FOMC's outlook on inflation and economic growth, as the Committee has been gradually reducing its key rate to support the economy while keeping inflation in check.



Waller's decision on the timing of rate cuts will be influenced by specific indicators of inflation progress. These include the six-month percent change in core Personal Consumption Expenditures (PCE) prices, monthly inflation readings, the behavior of imputed prices, and the impact of geopolitical conflicts and tariff proposals on inflation. Waller expects higher inflation readings from early in 2024 to drop out of inflation numbers in January, which should result in a significant step-down in the 12-month inflation numbers through March.

Geopolitical conflicts and tariff proposals could potentially impact Waller's view on appropriate monetary policy in 2025. However, Waller expects these factors to have a limited or temporary impact on inflation, making them unlikely to significantly alter his perspective on monetary policy. He will continue to monitor the data and reassess his view as needed, but at present, he is not concerned that these factors will change his stance on monetary policy.

In conclusion, Christopher Waller's remarks suggest that further interest rate cuts are likely in 2025, with the pace of these cuts depending on the progress made in reducing inflation. Waller's decision on the timing of rate cuts will be influenced by specific indicators of inflation progress, and he expects geopolitical conflicts and tariff proposals to have a limited impact on his view of appropriate monetary policy. As the Fed continues to navigate the complex economic landscape, Waller's insights provide valuable guidance on the Committee's approach to monetary policy in the coming year.