(Bloomberg) — Federal Reserve Governor Christopher Waller said a continued softening in data over the next three to five months would allow the central bank to consider lowering borrowing costs at the end of 2024.
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“If the data were to continue softening throughout the next three to five months, you can even think about doing it at the end of this year,” Waller said on CNBC Tuesday. “If we get enough data going the right way, then we can think about cutting rates later this year, beginning of next year.”
Waller’s comments about the rate outlook follow those made earlier Tuesday at the Peterson Institute for International Economics, where he said he needs to see “several more” good inflation numbers to begin interest-rate cuts.
He noted April consumer price figures were a reassuring signal price pressures are not accelerating and suggest progress toward the central bank’s 2% goal has likely resumed.
“In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy,” Waller said at the Peterson Institute for International Economics.
“We’re not seeing anything right now that looks like staying here for three or four months is going to cause the economy to go off a cliff,” he added in response to questions following his speech.
Waller is among Fed officials who have recently emphasized the central bank may need to hold rates steady for longer than previously thought. Policymakers haven’t adjusted the benchmark interest rate — now at a 23-year high — since July.
The Fed governor welcomed the latest consumer price data, which showed a key gauge of underlying inflation slowed for the first time in six months, but he said the figures showed only modest progress toward the Fed’s inflation goal.
“If I were still a professor and had to assign a grade to this inflation report, it would be a C+ — far from failing but not stellar either,” he said.
Waller said that further rate increases are “probably unnecessary.” He added in a discussion following his prepared remarks that he anticipates the next move in borrowing costs will be down.
He said policy is “working” and that he expects higher rates to put more downward pressure on the economy in the coming months.
Neutral Rate
Waller said the so-called long-run neutral rate — a level at which borrowing costs neither stimulate nor weigh on the economy — is a useful concept but didn’t seem convinced the measure has moved higher.
Atlanta Fed President Raphael Bostic, speaking with reporters earlier on Tuesday, said policymakers at the US central bank plan to “dig into” a debate on just that topic in the coming months.
“Everyone is rethinking” whether the historically low rates that prevailed before the pandemic are likely to return, Bostic told reporters. “There’s just been a lot of change, so on that one, I think that the jury is still out.”
Read More: Bostic Says Fed ‘Rethinking’ Views on Neutral Policy Rate
Bostic also said the central bank will be in a place to start lowering interest rates “by the end of the year,” though he doesn’t expect that to happen before the fourth quarter.
In separate comments Tuesday, Fed Vice Chair for Supervision Michael Barr reiterated that policymakers need to hold interest rates steady for longer than previously thought in order to fully cool inflation.
While the labor market and economic growth have moderated, the US economy overall remains on solid footing. Employers have added 246,000 jobs on average each month this year, and unemployment, at 3.9%, is low. Fed officials broadly have cited the economy’s performance to make the case they can afford to be patient before implementing rate cuts.
“With the labor market as strong as it is, my focus remains bringing inflation down” toward the Fed’s goal, Waller said.
–With assistance from Steve Matthews and Catarina Saraiva.
(Updates with additional comments from Waller on CNBC.)
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