The Federal Reserve is making significant progress in reining in skyrocketing prices without causing a detrimental impact on the U.S. economy, according to Fed Gov. Christopher Waller. He believes that the current state of affairs paves the way for the central bank to lower interest rates this year, although he remains cautiously optimistic about the durability of the decline in inflation.
In a speech prepared for The Brookings Institution, Waller expressed confidence that the current monetary policy is appropriately set at a restrictive level, which will sustain downward pressure on demand and enable the central bank to achieve its 2% inflation target. He reiterated that as long as inflation remains subdued and doesn’t rebound, policymakers at the Fed will be able to cut the target range for the federal-funds rate in 2021.
While there has been speculation among investors that the first rate cut could occur as early as March, Waller refrained from providing specific timing details. He emphasized that the decision on forecast cuts and their magnitude will depend on incoming data.
Waller further highlighted that he sees no urgency to swiftly lower rates or embark on aggressive cuts, given the current strength of economic activity and labor markets, coupled with gradual progress towards the 2% inflation target. The Fed aims to avoid repeating past mistakes when rates were cut rapidly and by substantial amounts during previous economic cycles.
“When the time is right to begin lowering rates, I believe it can and should be done methodically and carefully,” Waller emphasized.
In terms of combating inflation, Waller expressed optimism, noting that recent progress and the available economic and financial indicators have boosted his confidence. He stated, “The progress I have noted on inflation, combined with the data in hand on economic and financial conditions and my outlook, has made me more confident than I have been since 2021 that inflation is on a path to 2%.”
