Fed’s Waller: Latest data confirm no rush for interest rate cuts

In a speech overnight, Fed Governor Christopher Waller articulated that Fed is in “no rush” to initiate interest rate cuts. This position comes in light of recent economic developments, suggesting that interest rates may need to be maintained at their current restrictive levels “longer than previously thought.”

Waller acknowledged the significant strides made in curbing inflation last year and the substantial improvement in labor market balance. Yet, he expressed reservations about the pace of continued progress, stating, “the data we have received so far this year has made me uncertain about the speed of continued progress.”

This uncertainty has been fueled by economic indicators over the past month, with Waller highlighting February’s robust job growth of 275k and a three-month average job growth of 265k, alongside persistently high inflation metrics.

Particularly concerning to Waller is a notable jump in Core PCE inflation to 0.4% on a monthly basis in January, a significant increase from an average of around 0.1% in the fourth quarter. These observations have solidified Waller’s belief that there is “no rush to cut the policy rate,” advocating for a continuation of the Fed’s current restrictive stance, “for longer than previously thought.”

Waller remains optimistic about making further progress towards disinflation, which could eventually justify a reduction in the federal funds rate target range within the year. But he asserts “until that progress materializes, I am not ready to take that step.”

Full speech of Fed’s Waller here.