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A key figure at the Federal Reserve recently raised a cautionary flag, suggesting the central bank’s efforts to tame inflation might be hitting a snag. Despite this, he’s still in favor of trimming interest rates later this month.
Christopher Waller, who serves as a governor on the Federal Open Market Committee, announced on Monday his support for reducing rates when the group convenes on December 17-18. He pointed out that the currently high borrowing costs have calmed demand in the world’s largest economy, which contributes to reduced price pressures.
However, Waller also cautioned that if upcoming data conflicts with their expectation of slowing inflation and a still-resilient economy, he would lean towards maintaining the current policy rate in December.
He observed that progress in bringing inflation back to the Fed’s targeted 2 percent seems to be faltering. October’s official data showed the consumer price index rose at an annual rate of 2.6 percent.
This Friday, Fed officials will receive a crucial update on the job market with the release of November’s payroll report, followed by fresh inflation data next week. They’ll also be getting updated figures on retail sales—an important component of the US economy—on the first day of their two-day policy meeting this month.
Recently, officials have grown a bit more optimistic about the economy’s direction. Earlier concerns about a severe slowdown in the job market have eased. According to a thorough summary released from their November meeting, there’s been “no sign of rapid deterioration” in that area.
The more reassuring economic outlook, paired with lingering worries about stubbornly high price pressures, has generated broad support among Fed officials for a moderate approach. They’re contemplating the best pace to restore monetary policy to a “neutral” position—one that neither fuels nor dampens demand.
In a lighthearted moment, he likened the ongoing battle with inflation to an MMA fight, where he’s trying to hold inflation in a chokehold, only for it to slip away just as he’s expecting it to give in. “But rest assured,” he emphasized during a prepared speech at a conference in Washington, “inflation isn’t escaping the ring.”
Waller indicated that interest rate cuts would likely “continue over the next year,” but noted that the pace of these cuts would probably ease over time.
His remarks come just before the Fed enters a scheduled communication blackout ahead of the December meeting.
If the Fed decides to implement a quarter-point cut in December, it would represent the third consecutive meeting where rates have been dialed down, following a half-point slash that kicked things off in September. This would bring the federal funds rate to a newly targeted range between 4.25 and 4.5 percent.
