On Wednesday, Federal Reserve "star committee member" and long-time FOMC voting member Fed governor Waller indicated that he believes inflation will continue to cool, progressing towards the central bank's 2% target, and supports further rate cuts this year.

Since September, Federal Reserve officials have lowered interest rates in three consecutive meetings, but last month, Fed Chairman Powell and several other officials stated that there is no need to rush to implement further cuts, a cautious stance largely stemming from ongoing concerns about inflation and the overall robust labor market. According to the futures market, it is almost impossible to see rate cuts in the upcoming meeting on January 28-29.

However, Waller refuted this during an event at the OECD in Paris:

Recent minimal progress on inflation has led to calls to slow down or halt the reduction of policy interest rates, but I believe inflation will continue to move towards the 2% target in the medium term, and further cuts will be appropriate.

Waller further stated

As always, the extent of further easing will depend on the inflation progress shown by the data, but my baseline information is that I believe more rate cuts would be appropriate.

If the outlook develops as I have described, I would support continuing to lower our policy rates in 2025, with the pace of these cuts depending on progress made on inflation while preventing a softening labor market.

In terms of the labor market and inflation, Waller believes that inflation will continue to move towards the 2% target and there are no signs that the employment market will significantly weaken anytime soon.

The reasons for inflation continuing to move towards the 2% target include six months of potential inflation trends, better-than-expected price data for November, and the role of estimated prices rather than directly observed prices when calculating a key Inflation Indicator.

The overall economy in the USA is "fundamentally solid" and the employment situation is approaching the Federal Reserve's full employment target. There are no signs in the data or forecasts indicating that the labor market will significantly weaken in the coming months.

When discussing the impact of Trump's policies, Waller expects that tariffs have no significant or lasting effect on inflation and are unlikely to affect his view on appropriate MMF policy.

Editor/ping