Fed Governor Waller is “leaning toward” lowering interest rates, but is concerned about inflation

Federal Reserve Governor Christopher Waller said Monday he expects to cut interest rates in December but is concerned about recent trends on inflation that may change his mind.

Waller said: “Based on the economic data available today and expectations that show that inflation will continue on its downward path to 2% in the medium term, I am currently inclined to support an interest rate cut at our meeting in December.” His statements before the Monetary Policy Forum in Washington.

But he pointed out, “The decision will depend on whether the data we receive before that will surprise the upside and change my expectations of the inflation path.”

Waller cited recent data suggesting that progress on inflation may be “stalling.”

In October, the Fed's preferred inflation index, the Personal Consumption Expenditures Price Index, showed headline inflation rising to 2.3% annually, and core prices, which exclude food and energy costs, rising to 2.8%. The Fed is targeting a rate of 2%.

Although the data was in line with Wall Street expectations, it showed an increase from the previous month and was evidence that despite progress, the central bank's target has proven elusive.

“In general, I feel like an MMA fighter who keeps getting the inflation in a chokehold, waiting for it to come out, and yet it keeps slipping out of my grip at the last minute,” Waller said, referring to mixed martial arts. “But let me assure you that capitulation is inevitable – inflation will not come out of the appraiser.”

Markets expect the Fed to cut another quarter of a percentage point from its benchmark overnight borrowing rate when it meets on December 17-18. This comes after a reduction of half a percentage point in September and a quarter of a percentage point in November.

“As of today, I am leaning towards continuing the work we have begun in returning monetary policy to a more neutral position,” Waller said.

Waller said he would watch upcoming employment and inflation data closely. The Bureau of Labor Statistics this week will release reports on employment and nonfarm payrolls, the latter coming after October's gain of 12,000, largely due to labor strikes and weather issues.

Even as progress in inflation slowed, Waller said the broader economic health made him feel it would be appropriate to continue to ease monetary policy.

“Having cut by 75 basis points, I think the evidence is strong that policy is still very restrictive and cutting again would only mean that we are not pressing the brake pedal as hard,” he said.