Federal Reserve Governor Waller: Further rate cuts possible, but timing depends on inflation progress.

Federal Reserve Governor Christopher Waller said on Wednesday that the inflation rate is expected to continue to decline by 2025, allowing the Fed to further lower interest rates, although the speed of rate cuts is uncertain. Waller stated that while inflation "seemed to stall" above the Fed's 2% target level in the last few months of 2024, based on market inflation estimates and monthly and short-term inflation readings, he believes that inflation in the United States will continue to ease, even though the pace of improvement is uncertain. Speaking at an event hosted by the Organisation for Economic Co-operation and Development (OECD) in Paris, Waller said, "This modest progress has generated calls to slow or stop the rate-cutting cycle. However, I believe that the inflation rate will continue to move towards the 2% target in the medium term, and further interest rate cuts would be appropriate." He added, "The pace of rate cuts will depend on how much progress we make in controlling inflation while preventing weakness in the labor market." The Fed lowered the policy rate by a total of one percentage point at the last three meetings in 2024, but the market expects rates to remain in the current range of 4.25% to 4.5% at the policy meeting scheduled for January 28th to 29th. Waller did not disclose how many rate cuts he believes would be appropriate this year, but he noted that there is "great divergence of views among Fed officials, ranging from no cuts to possibly five cuts," with five cuts reducing the Fed's policy rate by another 1.25 percentage points. As inflation progresses slowing down, Fed officials are reluctant to commit to further rate cuts, as the economy continues to perform well, with growth above long-term potential expectations, sustained hiring and wage growth supporting consumer spending. Waller said, "I still believe that the foundation of the US economy is strong, and there is no data or forecast indicating a significant weakening of the labor market in the coming months." The US will release new employment data for December on Friday. Fed policymakers are also grappling with how President Trump's upcoming policies may change the economic trajectory, with the impact of tariffs being a key concern. While Waller acknowledged that higher tariffs "increase the possibility of upward pressure on inflation over the next year," he noted that this may not lead to sustained upward pressure on prices, therefore "unlikely to affect my view on appropriate monetary policy."