Federal Reserve Governor Christopher Waller said in an interview on CNBC on Friday he prefers a half-percentage point cut at the upcoming Federal Open Market Committee meeting as inflation fell more sharply than projected. “That’s enough to keep in mind that core inflation, excluding food and energy, has averaged below 1.8% over the last four months,” Waller said. The Fed intends to see yearly inflation within the target of 2%.
In fact, Waller’s comment was indeed steered by the most recent consumer and producer price index, both of which rose 0.2% for the month but actually pointed to an even more strengthened downward path, where the Fed would then turn attention toward supporting a softening labor market.
As market expectations had already moved into a 25-basis point cut ahead of the meeting, comments by Waller indicate that the wording has shifted. “The point is, we do have room to move, and that is what the committee is signaling,” he declared.
This half-point cut would push the key borrowing rate into a 4.75%-5% range. Individual Fed officials indicate more cuts are also possible this year, and a general expectation is for the full percentage-point fall by 2025.
An exception was presented by the Fed Governor Michelle Bowman, who was the only dissenter in the committee by supporting more prudence over a quarter-point reduction. She feared that a bigger cut may be interpreted as proclaiming success too early in arriving at price stability and is only 2.5% for core inflation.
Looking forward, Waller acknowledged that several scenarios could play out for interest rates depending on the data that is forthcoming. After his comments, futures market pricing changed, putting nearly a coin flip chance of another half-point reduction at the November meeting.
The Fed will get an even closer look at inflation trends next week with the appearance of the August personal consumption expenditures price index report-a favorite inflation gauge of the central bank. Fed Chair Jerome Powell cited expectations of an annual inflation rate of 2.2%, down from 3.3% a year before. Waller continued his reiteration of commitments to aggressive actions on rate cuts if economic indicators continue to suggest a softening inflationary environment.
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