(Bloomberg) -- Federal Reserve Governor Christopher Waller said the US central bank could lower interest rates again in the first half of 2025 if inflation data continue to be favorable.
Most Read from Bloomberg
-
Chicago Agency Pitches $1.5 Billion Plan to Fix Transit Woes
-
Churches, Cinemas — and Moon Artifacts — Top List of Endangered Monuments
“The inflation data we got yesterday was very good,” Waller said Thursday in an appearance on CNBC, referring to fresh figures that showed a cooldown in underlying price pressures last month.
“If we continue getting numbers like this, it’s reasonable to think rate cuts could happen in the first half of the year,” he said, adding that he wouldn’t entirely rule out a cut in March.
If future inflation figures fall in-line with December’s positive report, Waller said the Fed may cut more this year and sooner than investors are currently expecting.
“I’m optimistic that this disinflationary trend will continue and we’ll get back closer to 2% a little quicker than maybe others are thinking,” he said. The Fed aims for 2% inflation.
The policy-sensitive yield on two-year Treasury notes dropped to a session low of 4.25% following Waller’s comments, and traders priced in a little more easing for Fed meetings.
The May meeting is now a coin-toss in investors’ eyes. This year’s first full cut is priced for the Fed’s meeting in July, and for all of 2025, about 40 basis points of cuts are now priced, up from 34 basis points earlier.
Data Dependent
Waller said officials’ median estimate of the so-called neutral policy rate, one that neither encourages nor inhibits economic growth, implies that three or four cuts this year are possible, depending on incoming data.
“It just hinges on the data,” he said. “If the data doesn’t cooperate, then you’re going to be back to two, maybe even one if we just get a lot of sticky inflation.”
A chorus of Federal Reserve officials have welcomed this week’s fresh inflation data. Still, many policymakers have signaled they expect a slower pace of interest-rate cuts in 2025 compared with the closing months of 2024.
Fed officials slashed rates at three consecutive meetings last year, most recently with a quarter-point cut in December. They penciled in two cuts in 2025, according to the median projection released last month.
Meanwhile, recent employment figures have helped allay concerns of a material slowdown in the labor market. Employers added jobs at a brisk pace at the end of the 2024, while the unemployment rate fell.