FED member Christopher Waller made optimistic statements about the US economy and inflation trend, signaling that many interest rate cuts could be made in 2025.
Waller noted that the December inflation data showed “a very good performance” and that inflation appeared to be “gradually returning to trend”. He expressed hope that this momentum would continue and pave the way for a change in monetary policy.
“If the data continues to develop this way, we have reason to believe that interest rates could be cut in the first half of this year,” Waller said. Noting that inflation has been close to the Fed’s 2% target for six of the last eight months, Waller reinforced his optimism. While he warned that unforeseen economic disruptions like those seen last year could delay policy changes, Waller argued that the trend of falling inflation remains encouraging.
Waller also speculated on the potential timing and frequency of rate cuts, suggesting that if positive data continues, there could be “three or four rate cuts this year,” with cuts possible as early as March. He highlighted the strength of the U.S. labor market, describing it as “robust, not explosive,” and noting that strong December employment reports offset earlier weak data.
Regarding inflationary pressures, Waller downplayed the impact of tariffs, describing their impact on prices as “marginal and short-lived.” Waller added that inflation stickiness had weakened, and he took a more optimistic view than some of his colleagues.
In discussing regional factors, Waller acknowledged the economic impact of the California wildfires but said the effects would remain localized and were unlikely to significantly impact the national economy.
Following Waller's comments, interest rate futures traders adjusted their expectations, with the probability of a Fed rate cut in May rising to nearly 50% before focusing on June.
*This is not investment advice.
