Fed official wants to see more good inflation data before starting rate cuts

ISTANBUL

US Federal Reserve Governor Christopher Waller said Tuesday that he needs to see "several more months of good inflation data" before he would be comfortable supporting an easing in the stance of monetary policy.

"After a run of great data in the latter half of 2023, it seemed that significant progress on inflation would continue and that rate cuts were not far off," he told at the Peterson Institute for International Economics in Washington, D.C.

"However, the first three months of 2024 threw cold water on that outlook, as data on both inflation and economic activity came in much hotter than anticipated," he added.

Although bad inflation data initially seemed like a "bump in the road," once it continued to point in the wrong direction, the Fed's narrative quickly turned towards concerns that the economy was not cooling as needed to keep inflation moving down to the Federal Open Market Committee's (FOMC) 2% inflation goal, according to the official.

"Progress on inflation appeared to have stalled and there were fears that it might even be accelerating. Suddenly, the public debate became whether monetary policy was restrictive enough and if rate hikes should be back on the table," he explained.

Waller, however, added that more recent macroeconomic data indicated that the restrictive monetary policy is helping to cool off aggregate demand and the inflation data for April suggests that progress toward 2% has resumed.

Consumer inflation annually rose 3.4% in April, and monthly increased 0.3%, both slowing down from March, according to the latest figures.

"Last week's report on consumer price index (CPI) inflation in April was a welcome relief after three months without progress toward 2 percent. That said, the progress was so modest that it did not change my view that I will need to see more evidence of moderating inflation before supporting any easing of monetary policy," Waller said.

He added, "One month does not constitute a trend, but this data suggests that policy is doing its job to moderate aggregate demand, which will support renewed progress in lowering inflation.

"Central bankers should never say never, but the data suggests that inflation isn't accelerating, and I believe that further increases in the policy rate are probably unnecessary."

Waller noted that he is hopeful that progress toward the 2% inflation target is "back on track."