Fed's Waller anticipates further interest rate cuts in 2025

Investing.com -- Federal Reserve governor Christopher Waller expressed confidence in the continued decline of inflation in the U.S. in 2025. This, he suggests, would allow the Federal Reserve to further reduce interest rates, albeit at an unpredictable pace.

Waller acknowledged that inflation appeared to have plateaued above the Fed's 2% target in the final months of 2024. However, he remains optimistic due to market-based inflation estimates and short-term inflation readings. These indicators suggest that inflation is still on a downward trend, even if the rate of improvement remains uncertain.

Waller's comments came during an event hosted by the Organization for Economic Cooperation and Development in Paris. He addressed concerns regarding the slowdown in reducing the policy rate, stating his belief that inflation will continue to approach the 2% goal over the medium term, and further rate reductions will be suitable.

The pace of these cuts, Waller explained, will hinge on the progress made in controlling inflation, while also ensuring the labor market remains robust. In the final three meetings of 2024, the Fed decreased its policy rate of interest by a full percentage point. However, it is expected to maintain the rate in the current 4.25% to 4.5% range at the forthcoming Jan. 28-29 policy meeting.

While Waller did not specify the number of rate cuts he anticipates for this year, he noted a wide range of views among Fed officials. Some suggest no cuts, while others propose as many as five cuts, which would lower the Fed's policy rate by an additional 1.25 percentage points.

The reluctance among Fed officials to commit to further rate cuts is due in part to the solid performance of the economy. With growth exceeding long-term potential estimates and continued hiring and wage growth supporting consumer spending, the economy remains strong.

Waller reaffirmed his belief in the stability of the U.S. economy, stating there is no data or forecasts suggesting a significant weakening of the labor market in the coming months. He also mentioned that the Fed will receive new job data for December on Friday.

As the incoming Trump administration's policies may alter the course of the economy, Fed policymakers are working to understand potential impacts. Waller acknowledged the possible inflationary impact of increased tariffs but believes they are unlikely to cause a sustained rise in price pressures or significantly influence his view of appropriate monetary policy.

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Source: Investing.com