Federal Reserve Governor Christopher Waller recently indicated that future interest rate cuts are likely to be less aggressive than the substantial move made in September. He expressed concerns that the economy could still be running at a hotter-than-desired pace, citing data on employment, inflation, gross domestic product, and income. Waller believes that caution should be exercised in terms of the pace of rate cuts moving forward, as the data suggests that the economy may not be slowing as much as desired.
At its September meeting, the Federal Open Market Committee lowered the baseline interest rate by a half percentage point to a target range of 4.75% to 5.00%, a move typically reserved for times of crisis. Officials also indicated the potential for further cuts in the final two meetings of 2024 and beyond. While Waller did not commit to a specific path ahead, he stated that his baseline still calls for a gradual reduction in the policy rate over the next year.
Key data points for the Fed have been mixed in recent days, with stronger labor market numbers in September, slightly higher than expected consumer price index inflation, and strong GDP growth. The Commerce Department’s final revision for second-quarter growth showed an increase in gross domestic income gain to 3.4%, suggesting that the economy may be stronger than previously thought with little sign of a major slowdown in economic activity. The savings rate was also adjusted higher, indicating a positive outlook for the economy.
Waller’s remarks at a conference at Stanford University suggested a more cautious approach to future rate cuts based on the current economic data. While acknowledging the need to consider the data, he emphasized the importance of proceeding with caution rather than making aggressive moves at this time. Waller’s viewpoint reflects a desire for gradual rate cuts and a focus on maintaining stability in the economy moving forward.
The Fed’s decision to lower the baseline interest rate by a significant amount in September was a departure from its usual strategy of incremental quarter percentage point cuts. The move was intended to address concerns about the pace of economic growth and signal a willingness to take proactive measures. However, Waller’s more cautious approach indicates a desire to avoid overreacting to the data and to carefully consider the implications of future rate cuts on the overall economy.
Overall, Waller’s comments suggest a measured and deliberate approach to monetary policy in the coming months. While acknowledging the need for continued adjustments to the policy rate, he advocates for a careful evaluation of the economic data and a gradual reduction in rates over the next year. By balancing caution with the need for potential stimulus, Waller’s approach aims to support economic growth while avoiding potential risks associated with rapid and aggressive rate cuts.
