Fed's Waller Anticipates More Rate Cuts in 2025
Investing.com -- Federal Reserve official Christopher Waller expressed confidence that inflation in the U.S. will continue to decline in 2025. According to him, this will allow the Federal Reserve to lower interest rates further, although the pace of such adjustments is expected to be unpredictable.
Waller acknowledged that inflation appears to have reached a plateau above the Fed's 2% target at the end of 2024. However, he remains optimistic due to market-based inflation forecasts and short-term inflation readings. These indicators suggest that, while the pace of improvement remains uncertain, inflation is still on a downward trend.
Waller's comments came during an event organized by the Organization for Economic Cooperation and Development in Paris. Addressing concerns about the slowing pace of interest rate cuts, Waller stated his belief that inflation will continue to approach the 2% target in the medium term and that further rate cuts will be appropriate.
Waller explained that the speed of these cuts will depend on the progress made in controlling inflation, while also ensuring that the labor market remains strong. The Fed has reduced the policy interest rate by a full percentage point during its last three meetings of 2024. However, it is expected to hold rates in the current range of 4.25% to 4.5% at the upcoming policy meeting on January 28-29.
Although Waller did not specify the number of rate cuts he expects this year, he noted that views among Fed officials vary widely. While some foresee no cuts at all, others propose five reductions that would bring the Fed's policy rate down by an additional 1.25 percentage points.
The reluctance of Fed officials to commit to further rate cuts is partly due to the strong performance of the economy. The economy continues to remain robust as growth exceeds long-term potential forecasts, and employment and wage increases continue to support consumer spending.
Reaffirming his belief in the stability of the U.S. economy, Waller pointed out that there are no data or forecasts indicating a significant weakening of the labor market in the coming months. He also added that the Fed will receive new employment data for December on Friday.
As the policies of the incoming Trump administration could alter the economic trajectory, Fed policymakers are trying to understand the potential impacts. Waller acknowledged that rising tariffs could have inflationary effects but believes the likelihood of them leading to a sustained increase in price pressures or significantly altering views on appropriate monetary policy is low.