Federal Reserve Governor Waller said on Monday that strong economic data since the Federal Open Market Committee (FOMC) meeting in September indicates the need to slow down the pace of interest rate cuts.

Since the significant interest rate cut by the Federal Reserve last month, labor market data shows a rebound in employment, and inflation has also exceeded expectations. Waller, in a prepared speech at a conference at Stanford University in California, said, "While we do not want to overreact or ignore this data, I believe that the overall data suggests that monetary policy should be more cautious in the pace of interest rate cuts than it was at the September meeting."

On September 18, the FOMC lowered the federal funds target range by half a percentage point to 4.75%-5.0%. Waller is a voting member of the FOMC.

Waller described three potential paths for future interest rates - a slow and steady decline, a more significant rate cut, or a pause in cuts. Regardless of which path is taken, the ultimate long-term goal is the same, to achieve the so-called neutral rate, a theoretical level that neither stimulates nor suppresses economic activity.

Waller mentioned that despite some ongoing weakness in manufacturing, the overall economy remains strong, especially with favorable adjustments in consumer income and savings data. In the first half of this year, the real Gross Domestic Product (GDP) of the United States grew at an annual rate of 2.2%, and Waller expects the growth rate in the third quarter to be even faster.

He also pointed out that consumer spending - which accounts for 70% of the GDP - remains strong as the engine of the economy. With lowering interest rates, suppressed demand for home renovations and other large consumer goods will drive consumption growth.

Powell said: "With the labor market broadly balanced and employment close to its maximum level, inflation has also been roughly close to our target in recent months. As policy makers, I want to do everything I can to keep the economy on this path. For me, the core issue is the magnitude and speed of rate cuts, I believe the current federal funds rate is at a restrictive level."

In the first scenario assumed by Powell, the economy continues to be robust, inflation gradually approaches the Fed's annual 2% target. The FOMC could lower rates to neutral at a "steady pace", while closely monitoring the upcoming data.

If the risks of an economic downturn increase, officials may decide to accelerate the pace of rate cuts.

Powell said: "Another less likely scenario is that inflation significantly remains below 2% for a period of time, or the labor market deteriorates significantly. This indicates a decline in demand, and the FOMC may suddenly fall behind the situation, prompting policy rates to fall faster to neutral levels."

The third scenario is if inflation accelerates again, possibly due to increased consumer demand or supply disruptions. In this case, as long as the labor market remains healthy, the Fed may pause rate cuts until inflation subsides.

Powell said: "No matter what happens in the short term, my baseline is still to gradually lower policy rates next year. Although much attention has been given to the extent of rate cuts in the next one or two meetings, I believe that if the economy continues to maintain its current good state, it will be a gradual process."

Many economists estimate that the current neutral rate level is between 2% and 3%. According to the median of the Fed's September economic forecast, the long-term federal funds rate is expected to be 2.9%.

Powell stated that he will not overinterpret the employment report for October, which will be released on November 1, less than a week before the Fed's policy decision in November. Due to the Fed officials' silence period before the meeting, the impact of this report may be limited.

Waller said, "This report is likely to show a significant but temporary increase in unemployment due to the recent two hurricanes and the Boeing company strike. I expect these factors may lead to a decrease of more than 0.1 million in employment growth this month, and the unemployment rate may have some slight changes, but it is uncertain whether it will be particularly noticeable."

According to FactSet's data, economists unanimously predict that the non-farm employment in October will increase by 0.12 million people, while September's increase was 0.254 million. The unemployment rate is expected to remain at 4.1%.

On Monday, the interest rates futures market indicated an 86% likelihood of a 25 basis point reduction in the federal funds rate on November 7, while most people believe there will be no further rate cuts.

Editor/Rocky