Fed ‘getting closer’ to rate cut, Gov. Waller says

Federal Reserve Gov. Christopher Waller said the central bank is “getting closer” to interest rate cuts, as borrowing costs remain at a 23-year high.

During an event at the Kansas City Fed on Wednesday, Waller suggested the Fed was on track for a rare “soft landing,” barring any major changes in inflation and employment data.

“I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view,” Waller said.

“So, while I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted.”

A spike in inflation after the pandemic pushed the Fed to hike interest rates from near zero in March 2022 to a range of 5.25 percent to 5.5 percent last July.

While the central bank signaled during its December meeting that it would start cutting rates this year, a brief uptick in inflation pushed that timeline later than markets initially hoped.

“These twists and turns in the economic data shifted everyone’s expectations back and forth as to when the [Federal Open Market Committee] might begin lowering its policy interest rate and how many cuts there would be this year,” Waller said. 

Waller said his “consistent view was that there was no urgency to cut rates until the committee is confident that inflation is returning sustainably to 2 percent,” the Fed’s mandated inflation target.

Inflation peaked at 9 percent in July 2022 but has since fallen significantly. The consumer price index dipped to a 3 percent year-over-year increase in June, down from 3.3 in May, according to the Labor Department’s latest print published last week. 

June was also the first month prices declined since the pandemic.

While the vast majority of interest rate traders don’t expect the central bank to cut rates at the July meeting later this month, they overwhelmingly expect the first rate cut to come at the next Fed meeting in September, according to rate probabilities analyzed by the CME FedWatch.

Waller said in May that further interest rate increases would be “probably unnecessary” since data shows inflation is not “accelerating.”