Federal Reserve Governor Warsh: If inflation data continues to improve, there may be a possibility of a rate cut in the first half of 2025.

Federal Reserve Governor Christopher Waller said that if future inflation data continues to perform well, the US central bank may cut interest rates again in the first half of 2025. Waller said in an interview with the media on Thursday, "The inflation data released yesterday was very good." He mentioned that the latest data showed some easing of core price pressures last month. "If we continue to receive such data, it is reasonable to speculate that there may be a rate cut in the first half of 2025," he said, adding that he does not completely rule out the possibility of a rate cut in March. Waller further pointed out that if future inflation data is consistent with the positive report from December, the Federal Reserve may cut rates earlier and more frequently this year, exceeding investor expectations. He said, "I am optimistic about the continuation of this deflation trend and believe that we may be approaching the 2% target faster than some people expect." The Fed's long-term goal is to control inflation at 2%. After Waller's comments, the yield on the 2-year US Treasury bond fell to 4.25%, hitting a new low for the day. Meanwhile, traders increased bets on the Fed taking a more accommodative stance in future meetings. In the eyes of investors, whether the Fed will cut rates at the May meeting is still unknown, but the market is currently viewing the July 2025 meeting as the potential time for the first comprehensive rate cut. For the full year 2025, the market currently expects the Fed to cut rates by 40 basis points, higher than the previous expectation of 34 basis points. Waller pointed out that the median forecast of Fed officials for the so-called "neutral policy rate" (the rate that neither promotes nor suppresses economic growth) suggests that, based on future data, there may be three to four rate cuts this year. He emphasized, "Everything depends on the data. If the data does not cooperate, the number of rate cuts may be reduced to two, or even just one, especially if inflation remains stubborn." Despite this week's welcomed inflation data, many officials still expect the pace of rate cuts in 2025 to be slower than at the end of 2024. The employment data at the end of 2024 showed that the labor market did not significantly slow down, with employer recruitment activities remaining active and a decrease in the unemployment rate. Waller believes that the current job market is robust but not overheated, reflecting the restraining impact of Fed's restrictive policies on the economy. He said, "Looking at recruitment rates, resignation rates, and wage growth, there are no signs of overheating or accelerating in the current job market, which is why I believe that the economic situation is still within the limits."