Federal Reserve Governor Christopher Waller recently expressed his belief that interest rate cuts are on the horizon, provided there are no unexpected developments in inflation or employment. In a speech at the Kansas City Fed, Waller indicated that the current data align with the possibility of a “soft landing” and mentioned that he will closely monitor upcoming data to support this viewpoint. While Waller does not believe that the final destination has been reached, he is of the opinion that a policy rate cut will soon be justified.
Waller outlined three potential scenarios in the coming days. The first scenario involves inflation data improving and warranting a rate cut in the near future. The second scenario entails data fluctuations but still pointing towards moderation. Lastly, the third scenario indicates a scenario of unexpectedly high inflation, which Waller considers to be the least likely. Based on the probabilities of these scenarios, Waller believes that the time for a policy rate cut is approaching.
Waller’s recent comments are of significance given his previous stance as one of the more hawkish members of the Federal Open Market Committee. In a previous interview with CNBC, Waller had mentioned that rate cuts were still a few months away, awaiting more concrete evidence of declining inflation. However, his current statements suggest that the conditions for a rate cut are almost fulfilled. Waller pointed out favorable developments in the labor market and the consumer price index, indicating progress towards the FOMC’s price stability goal.
Waller’s remarks echo the sentiments expressed by New York Fed President John Williams in a recent interview, where Williams emphasized the consistent movement of inflation data in the right direction. He stated that the trends are aligning towards a desired disinflationary trajectory. This alignment of views between Waller and Williams underscores a growing confidence in the prospect of interest rate cuts in the near future.
The anticipation of interest rate cuts is reflected in the market, with traders in the fed funds futures market pricing in a quarter percentage point rate cut in September, followed by additional cuts before the year concludes. According to the CME Group’s FedWatch measure, fed funds futures contracts imply a lower rate by the end of the year, signaling market expectations of a more accommodative stance by the Federal Reserve.
Federal Reserve Governor Christopher Waller’s projections of impending interest rate cuts indicate a shift towards a more dovish monetary policy stance. The alignment of his views with other policymakers and the market’s pricing expectations suggest a growing consensus on the need for rate cuts to support economic stability and growth. As the Federal Open Market Committee convenes in the upcoming months, the decision to lower the policy rate may become a reality as the macroeconomic landscape evolves.
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