There's 'no rush' for the Federal Reserve to start rate cuts, Waller says

The US Federal Reserve building in Washington DC

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Federal Reserve Governor Christopher Waller said Wednesday that there is “no rush” for the U.S. central bank’s Federal Open Market Committee to start cutting interest rates, as the economic “data we have received so far this year has made me uncertain about the speed of continued progress.”

Implementing rate reductions too soon, a move that risks a resurgence in inflation, “is something I want to avoid,” Waller said in prepared remarks at an Economic Club of New York event, implying it would be prudent to hold rates at the current 5.25%-5.50% target range for longer.

“The risk of waiting a little longer to cut rates is significantly lower than acting too soon,” he added, citing “the strength of the US economy and resilience of the labor market.”

Like most of his colleagues, Waller is in the camp that embarking on rate cuts likely will be appropriate later this year, though he needs “to see at least a couple months of better inflation data before I have enough confidence that beginning to cut rates will keep the economy on a path to” the 2% inflation target.

In addition to the recent “disappointing” inflation data, Waller cited a robust economy and tight labor market as reasons the Fed can hold off until it’s confident that inflation is consistently moving towards the goal.

“I see economic output and the labor market showing continued strength, while progress in reducing inflation has slowed,” he said. “Because of these signs, I see no rush in taking the step of beginning to ease monetary policy.”

At the start of March, Waller said he would like to see the Fed’s holdings of mortgage-backed securities drop to zero, while shifting a larger portion of its Treasury holdings toward short-dated securities.

7:01 PM ET: Event concludes.

6:45 PM ET: Waller touted how the Fed ratcheted up rates from near zero in March 2022 to the current 5.25%-5.50% level (the most aggressive tightening cycle in decades) without triggering a recession.

6:41 PM ET: “We don’t know” whether the neutral rate of interest (r*), the rate at which monetary policy is neither stimulating nor hindering economic growth, has risen amid the Fed’s tightening cycle after a 40-year secular decline.

Update at 6:38 PM ET: Waller said “something really dramatic” would have to happen to resume rates hikes.

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Roy Walsh

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