After latest data, Fed official calls for ‘caution’ on pace of rate cuts

'Economy may not be slowing as much as desired,' Fed governor says

After latest data, Fed official calls for ‘caution’ on pace of rate cuts

'Economy may not be slowing as much as desired,' Fed governor says
Federal Reserve Governor Christopher Waller

In the wake of mixed data from recent reports on jobs and inflation, one of the members of the Federal Reserve’s board of governors called this week for more restraint in the pace of cuts to the federal funds rate.

Speaking at a conference of economists at Stanford University, Federal Reserve Governor Christopher Waller said that the labor market is in “rough balance” and inflation has run close to the central bank’s target over the past several months. That begs the question of how much and how fast to trim the Fed’s anchor rate, which Waller said currently remains at a restrictive level. However, a stronger-than-expected September jobs report and a hotter-than-expected CPI are signaling that the economy may not be slowing enough to encourage disinflation at the rate the Fed wants to see.

“This data is signaling that the economy may not be slowing as much as desired,” Waller said. “While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting.

“I will be watching to see whether data, due out before our next meeting, on inflation, the labor market and economic activity confirms or undercuts my inclination to be more cautious about loosening monetary policy,” he continued.

Waller affirmed that there’s no expectation to deviate from a rate-lowering policy over the next year, noting that the median federal funds rate projected by Federal Open Market Committee (FOMC) participants at the end of 2025 is 3.4% (it’s at a range of 4.75%-5% now). The long-term outlook is a little more uncertain: While the median estimated longer-run level of the federal funds rate in the FOMC’s dot-plot is 2.9%, participants’ projections covered a wide range, from 2.4% to 3.8%.

“While much attention is given to the size of cuts over the next meeting or two, I think the larger message of the [dot-plot] is that there is a considerable extent of policy restrictiveness to remove, and if the economy continues in its current sweet spot, this will happen gradually,” Waller said.

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