Federal Reserve Governor Christopher Waller recently expressed caution regarding future interest rate cuts during a Fed Listens event in Washington, D.C. He mentioned that upcoming rate cuts might not be as aggressive as the significant decrease implemented in September due to concerns about the economy possibly continuing to operate at a faster pace than desired.
Waller pointed to various economic indicators such as employment reports, inflation rates, gross domestic product figures, and income statistics to support his stance. He emphasized that while it’s essential not to ignore this data, it suggests that monetary policy should proceed more cautiously in terms of the pace of rate cuts compared to what was required during the September meeting.
During the September meeting, the Federal Open Market Committee made an unprecedented move by reducing the baseline interest rate by 50 basis points to a target range of 4.75% to 5.00%. This action deviated from the Fed’s usual preference for smaller, quarter-point increments during rate adjustments, typically seen during times of crisis.
In addition to the recent rate cut, projections indicated the possibility of further reductions in the last two meetings of 2024, followed by more cuts in 2025. However, Waller refrained from committing to a specific course of action, stating that his current outlook involves a gradual decrease in the policy rate over the next year.
Recent economic data has shown mixed results. While the labor market exhibited strength in September following a period of weakness over the summer, the consumer price index indicated slightly higher inflation levels than anticipated, and GDP numbers remained robust. The Commerce Department’s final revision for second-quarter growth revealed a significant increase in gross domestic income gain to 3.4%, aligning more closely with GDP figures. Additionally, the savings rate was adjusted upwards to 5.2%.
Based on these revisions, Waller highlighted that the economy appears stronger than previously believed, with limited signs of a substantial slowdown in economic activity. Despite the positive data, Waller’s cautious approach suggests that any future rate cuts should be made carefully to avoid potential negative consequences on the economy.
