The US Federal Reserve could cut rates three or four times this year if inflation data cooperates, with a first cut possible before July, a senior bank official said Thursday.
Headline consumer inflation rose for a third straight month in December as energy prices jumped, according to data published Wednesday, but a widely watched measure eased slightly, raising hopes that underlying inflation may be moderating.
“The inflation that we got yesterday was very good,” Fed governor Christopher Waller told CNBC, noting that underlying price pressures excluding volatile food and energy costs had been close to target on a monthly basis.
The US central bank has been paring back interest rates in recent months, cutting by a full percentage point since September to bolster the labour market. But in recent months, headline inflation has ticked higher, raising concerns that the Fed may have to pause further cuts throughout much of 2025.
At the most recent rate decision in December, Fed policymakers voted to cut rates by a quarter percentage-point to between 4.25 and 4.50, and penciled in just two rate cuts this year.
Waller, who is a permanent voting member of the Fed’s rate-setting committee told CNBC that he could support lowering rates as many as four times this year, depending on the data.
“I may be a little more optimistic about inflation coming down than the rest of my colleagues,” he said, adding that if the data didn’t “cooperate”, the Fed may be back to cutting just once or twice this year.
Asked about the timing of cuts, Waller said if the data came in as he expected, it was “reasonable” to think rate cuts could come in the first half of the year.
He also refused to rule out supporting a cut as soon as the Fed’s March rate decision, if the data supported it.
“I can certainly see rate cuts happening sooner than maybe the markets are pricing in,” he said.
Futures traders assign a roughly 70 per cent chance that the Fed will remain on pause through the March rate decision, and a roughly 80 per cent probability of no more than two cuts this year, according to data from CME Group.
– Tariff inflation shock unlikely – Waller was also asked about the likely impact of President-elect Donald Trump’s tariff proposals, which included threats to impose sweeping tariffs of as much as 20 per cent on all goods entering the United States.
Many economists have said these policies could push up prices, at least in the short term, while Trump and his allies have either dismissed these concerns, or insisted that any pressures would be counteracted by other policies, including energy deregulation.
“I don’t think tariffs are going to have a significant impact or persistent effect on inflation,” Waller said. “But we’ll just have to wait and see what happens.” He said most of the analysts on Wall Street estimate that Trump’s tariff plans would have “some marginal effect and short-lived effect on prices,” but that it would not lead to “persistent” inflation.
Inflation is likely to continue to ease and possibly allow the US central bank to cut interest rates sooner and faster than expected, Federal Reserve Governor Christopher Waller said on Thursday in comments that pushed against recent market moves that anticipate a shallower Fed rate path. Inflation “is getting close to what our 2% inflation target would be,” Waller said on CNBC, citing estimates indicating that one key measure of underlying inflation, the Personal Consumption Expenditures Price Index excluding food and energy costs, has been close to the Fed’s target for six of the past eight months.
The next monthly PCE report will not be released until Jan. 31, two days after the end of the Fed’s upcoming policy meeting, but analysts expect the monthly increase in core inflation may translate to an annual rate of less than 2%. “If we continue getting numbers like this, it is reasonable to think rate cuts could happen in the first half of the year … I am optimistic that this disinflationary trend will continue and we will get back closer to 2% a little quicker than maybe others are thinking,” Waller said, adding that as many as three or four quarter-percentage-point rate reductions could still be possible this year depending on how inflation behaves.
“If inflation is down and the labour market stays solid, you could think about restarting rate cuts several months from now … I don’t think March could be completely ruled out,” Waller said, referring to the Fed’s March 18-19 policy meeting.
Agencies
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