Federal Reserve Governor Christopher Waller said on Wednesday that recent disappointing inflation data affirms the case for the U.S. central bank holding off on cutting its short-term interest rate target.
"There is no rush to cut the policy rate" right now, Waller said in a speech prepared for delivery before an Economic Club of New York gathering. Recent data "tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2 percent," he noted.
Rate cuts are not off the table, however, Waller said, noting that further progress expected on lowering inflation "will make it appropriate" for the Fed "to begin reducing the target range for the federal funds rate this year."
It could take a few months of easing inflation data to gain that confidence, but until then, a strong economy gives the Fed space to take stock of how the economy is performing, the official said.
Pushing back the start of rate cuts will likely affect how much easing happens this year, Waller said. "It is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data."
Waller's comments were his first since last week's policy-making Federal Open Market Committee meeting where officials met expectations and maintained their overnight policy rate at 5.25% to 5.5%. They also affirmed forecasts from year-end 2023 for three rate cuts this year, based on the idea that inflation will fall back toward 2% as the year moves forward.
However, unexpectedly strong inflation this year has called into question whether or not the Fed can deliver on its forecast. Fed officials are waiting to see if recent data reflects a temporary setback in the effort to reduce price pressures, and if so, this could mean dialing back rate cut expectations for the year.
At the press conference following the FOMC meeting, Fed Chairman Jerome Powell said current policy risks are "two sided."
"We're in a situation where if we ease too much or too soon, we could see inflation come back, and if we ease too late, we could do unnecessary harm to employment and people's working lives," he said. "We want to be careful" and the strength of the economy gives the Fed space to watch the data before deciding what to do with interest rate policy, he added.
At the end of February, Waller signaled he was among the officials with some skepticism about any near-term rate cuts, given that the economy is showing strong growth amid a very strong labor market, saying "what's the rush" when it comes to shifting the settings of monetary policy?
