FED : Governor Waller Signals Caution on Potential 2024 Rate Cut, Emphasizes Methodical Approach Amid Economic Uncertainties

Governor Waller Signals Caution on Potential 2024 Rate Cut, Emphasizes Methodical Approach Amid Economic Uncertainties 

Governor Waller delivered his first comments since November during a speech at the Brookings Institution. He pointed to recent data, specifically mentioning Core PCE approaching 2% over the past six months, as a basis for the Federal Reserve's contemplation of a policy rate cut in 2024. However, he emphasized the need for caution, stating that concerns about the sustainability of trends in low inflation coupled with robust growth and low unemployment necessitate careful and calibrated adjustments to the policy path.

In November, Waller laid the foundation for a potential early 2024 rate cut, suggesting that if inflation continued to decline for several more months, the Fed might lower the policy rate. His current reference to rate cuts in 2024, rather than providing explicit and immediate details, was interpreted by the markets as a somewhat hawkish backtrack, at least in the short term. Waller stressed the importance of a methodical and careful approach to rate cuts, highlighting the strong economic backdrop and asserting that there is no urgency to cut rates as swiftly as in the past, tempering expectations regarding the depth of a rate cut cycle.

Despite speculation about a possible March cut, Waller has refrained from making public commitments, awaiting the release of the next set of inflation figures. In a Q&A session, he indicated that the timing of rate cuts would be determined by the Federal Open Market Committee (FOMC) deliberations. Waller expressed his intention to closely monitor the scheduled revisions to the annual CPI inflation on February 9th, hoping that they would confirm the observed progress in inflation.

Waller reiterated his belief that when the appropriate time comes to initiate rate cuts, it should be done methodically and carefully. He emphasized that the healthy state of the economy affords flexibility in lowering the nominal policy rate to maintain an appropriate level of tightness. However, he underscored that the timing and frequency of rate cuts would be guided by incoming data. Waller remains committed to targeting stable real rates, a stance he expressed in the previous year, but acknowledges that these rates could increase if the Fed does not implement rate cuts soon, fueling speculation that he may be in favor of a March cut, contingent on the forthcoming data.