Federal Reserve Governor Christopher Waller recently expressed his views on the current state of inflation during an appearance at the Peterson Institute for International Economics. He highlighted that based on recent data, inflation seems to be easing, and he does not believe that further interest rate hikes will be necessary. While Waller acknowledged that central bankers should never completely rule out the possibility of future rate increases, he emphasized that the data currently indicates a lack of acceleration in inflation, leading him to believe that additional policy rate hikes are likely unnecessary.
Waller based his assessment on a variety of indicators, including flattening retail sales and cooling in the manufacturing and services sectors. These data points suggest that the Fed’s previous rate hikes have been effective in alleviating some of the demand pressures that had contributed to the recent high inflation levels. While payroll gains have remained solid, internal labor market metrics, such as the rate of job turnover, indicate that the ultra-tight labor market conditions that were fueling wage growth have shown signs of loosening.
Despite his belief that further rate hikes are unnecessary at present, Waller made it clear that he is not yet ready to support interest rate cuts. He stated that the economy is evolving in line with the Committee’s expectations and that he would need to see several more months of favorable inflation data before considering a shift in monetary policy stance. Waller emphasized that unless there is a significant weakening in the labor market, he remains cautious about endorsing any easing of monetary policy.
Waller’s comments came in the wake of April’s consumer price index report, which showed inflation running at a 3.4% rate from a year ago. While this figure was slightly lower than in March, it was still higher than what Wall Street economists had projected. Waller regarded the report as a positive development, describing it as a “welcome relief.” However, he noted that the progress was modest and reiterated his stance that he would require more evidence of moderating inflation before considering any policy changes.
The remarks by Waller have prompted a reassessment of market expectations regarding future monetary policy actions. Earlier in the year, futures traders had priced in the possibility of multiple rate cuts, but higher-than-expected inflation data have led to a shift in projections. According to the CME Group’s FedWatch Tool, the first rate cut is now anticipated to occur no earlier than September, with a maximum of two quarter-point reductions by year-end. Waller did not disclose his personal expectations regarding the timing or extent of any rate cuts, choosing to keep his views private for the time being.