Christopher Waller, a member of the Federal Reserve Board of Governors, during a Fed listening event in Washington, D.C., on September 23, 2022.
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Federal Reserve Governor Christopher Waller indicated Monday that future interest rate cuts will be less aggressive than the big move in September, as he expressed concern that the economy may still be running hotter than desired.
Citing recent reports on employment, inflation, GDP and income, the policymaker noted that “the data suggest that the economy may not slow as much as desired.”
“While we do not want to overreact to or look at this data, my view is that the overall data says that monetary policy should proceed more cautiously on the pace of interest rate cuts than was called for at the September meeting,” Waller said. Prepared notes for a conference at Stanford University.
The Federal Open Market Committee at its September meeting took the unusual step of cutting the benchmark interest rate by half a percentage point, or 50 basis points, to a target range of 4.75% to 5.00%. In the past, the Fed has only done this in times of crisis, preferring to move in increments of a quarter of a percentage point, or 25 basis points.
Along with the cut, officials indicated the possibility of eliminating another half-point at the final two meetings of 2024, along with another full percentage point of cuts in 2025. However, Waller did not commit to a specific path forward.
“Whatever happens in the near term, my baseline still calls for a gradual rate cut over the next year,” he said.
The Fed's key data points have been mixed in recent days. The labor market posted stronger numbers in September after weakening over the summer, the CPI inflation measure was slightly higher than expected, and gross domestic product also remained strong.
In its final review of second-quarter growth, the Commerce Department also raised the level of GDP gains to 3.4%, a 2.1 percentage point revision from the previous estimate and closer in line with GDP. The savings rate was also revised much higher, to 5.2%.
“These revisions suggest that the economy is much stronger than previously thought, with little sign of a significant slowdown in economic activity,” Waller said.
