Waller advocates rate cut pause amid inflation concerns

Federal Reserve Governor Christopher Waller has expressed support for pausing interest rate cuts due to uneven progress on inflation, while also suggesting that reductions could be appropriate later in 2025 if inflation trends align with expectations.  

Waller made these remarks during a speech in Sydney, Australia, on February 17.  

Waller acknowledged that January's inflation data was "disappointing," but noted that the current monetary policy is already restricting economic activity and putting downward pressure on inflation.  

"If this winter-time lull in progress is temporary, as it was last year, then further policy easing will be appropriate. But until that is clear, I favor holding the policy rate steady," Waller stated.  

The Fed lowered rates by one percentage point in the final months of 2024 but held steady in January.  

Waller believes current 12-month readings are lower than in January 2024, indicating progress, but are "still too high."  

He also expressed scepticism regarding CPI figures being properly adjusted for seasonal factors.  

Despite concerns about inflation, Waller downplayed the potential impact of tariffs from the White House, speculating that they would "only modestly increase prices and in a non-persistent manner."  

"Other policies under discussion could have positive supply effects and put downward pressure on inflation," he added.  

According to CME Group's FedWatch Tool, markets have adjusted expectations, with the odds of a rate cut at the next Fed meeting in March at just 2.5%.  

Waller emphasised the need to act based on incoming data, even amidst uncertainty about the economic landscape.  

"Waiting for economic uncertainty to dissipate is a recipe for policy paralysis," he said.