Federal Reserve Governor Christopher Waller said Tuesday that he believes the Fed will be able to lower interest rates this year as long as inflation doesn’t rebound or stay elevated.
But he cautioned that the timing and actual number of cuts would depend on the data.
"With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past," Waller said in a speech at the Brookings Institution in Washington.
He said his view is consistent with the median projection from all Fed officials for three rate cuts in 2024. That is a more conservative outlook than the one shared by investors, who expect six cuts starting in March.
The Fed last raised rates in July to a 22-year high as part of an aggressive campaign to cool inflation.
Several other Fed officials have been aggressive recently in tamping down expectations of quick cuts in 2024.
New York Fed President John Williams said last Wednesday that he only sees cuts happening when the Fed is confident inflation is sustainably moving back to its 2% target — repeating a view he expressed in December.
"I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals," he said in a speech.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
Others also pumped the brakes on those expectations last week following a report showing that consumer prices increased more than expected in December as the Consumer Price Index (CPI) rose 3.4% over the prior year, an increase from the 3.1% increase seen the month prior.
Cleveland Fed President Loretta Mester told Bloomberg TV in an interview that March is probably too early for a rate cut and that the CPI report shows the central bank still needs to bring inflation down further.
Richmond Fed President Tom Barkin said he is still looking for conviction that inflation is on track to reach the Fed's 2% goal, while Chicago Fed President Austan Goolsbee said he also needs to see more data before cuts can begin.
On Tuesday, Waller said he is more confident the economy can continue along its current trajectory and that inflation is on a path to the central bank’s 2% target.
He pointed to progress in the 3- and 6-month inflation measures based on the Fed’s preferred inflation gauge, the personal consumption expenditures index on a "core basis," which excludes volatile food and energy prices. Core PCE inflation dropped to 1.9% on a six-month annualized basis in November, below the Fed’s target of 2%.
He also said he still views financial conditions, which have loosened back to the same levels as July, as tight.
Risks that would delay or dampen his expectations for cuts this year are that the economy doesn’t slow, the balancing out of supply and demand in the job market moves out of wack, or the improvement in inflation stops or reverses.
Waller says he’s closely watching scheduled revisions to CPI inflation due next month.
He said he’s also not swayed by a better-than-expected December jobs report, calling it "noise" and noting that jobs numbers were continuously revised lower last year.
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