U.S. Fed’s Christopher Waller Urges Patience On Rate Cuts After Jump In Prices

(Bloomberg) -- Federal Reserve Governor Christopher Waller said January’s jump in consumer prices warrants caution in deciding when to start cutting interest rates, though he still expects reductions to begin later this year.

“The strength of the economy and the recent data we have received on inflation mean it is appropriate to be patient, careful, methodical, deliberative – pick your favorite synonym,” Waller said Thursday in a speech in Minneapolis. “Whatever word you pick, they all translate to one idea: What’s the rush?”

Waller’s comments built on similar messages from other Fed policymakers earlier in the day, with Vice Chair Philip Jefferson calling on the central bank to guard against cutting rates too far in response to falling inflation and Governor Lisa Cook seeking “greater confidence” on price progress.

As recently as mid-January, investors and some economists were betting on the Fed to start lowering rates at its March 19-20 meeting. Markets have since significantly dialed back expectations for early and rapid cuts, shifting wagers on the first move to June or July on the heels of reports showing job and price gains well above forecasts in January.

Policymakers voted unanimously to leave interest rates unchanged in a range of 5.25% to 5.5% last month, and Chair Jerome Powell said that it was unlikely policymakers would reach the level of confidence on inflation’s path to the 2% target by their March meeting. The Federal Open Market Committee will update its rate projections at the meeting.

Waller said there’s “no great urgency” to ease policy given strength in the economy and labor market. He also indicated delaying rate cuts doesn’t preclude them happening after a few more months of data.

“I am going to need to see a couple more months of inflation data to be sure that January was a fluke and that we are still on track to price stability,” Waller said in prepared remarks at the Minneapolis campus of the University of St. Thomas. “My conjecture is that, in the absence of a major economic shock, delaying rate cuts by a few months should not have a substantial impact on the real economy in the near term.”

“And I think I have shown that acting too soon could squander our progress in inflation and risk considerable harm to the economy,” added Waller, who was appointed by former President Donald Trump and whose views are seen by investors as influential.

The Fed governor said he saw “predominately upside risks” to his expectation that inflation will continue to move toward the central bank’s 2% goal.

Waller said the January consumer price report could turn out to be an outlier, but “it also may be a warning that the considerable progress on inflation over the past year may be stalling.”

The Fed governor said he plans to pay particular attention to jobs data, wages and compensation, to see if they are moderating in a way that is consistent with the Fed’s 2% inflation target.

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