Fed's Waller says there's 'no rush' to cut U.S. interest rates

By Jeffry Bartash

Waller says Fed might have to keep rates higher for longer than Wall Street expects

Federal Reserve Gov. Chris Waller said high inflation readings and strong job gains in early 2024 reinforce his view that "there is no rush" to cut U.S. interest rates.

The most recent economic 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%," he said in speech at the Economic Club of New York on Wednesday night.

The Fed last week signaled it's likely to cut interest rates three times in 2024 even though inflation has perked up in the first few months of the year.

Fed Chairman Jerome Powell even suggested the inflation reports in January and February may have been exaggerated by seasonal factors or other temporary issues.

Powell also expressed confidence that inflation would continue to slow toward the Fed's 2% goal.

Waller, a pivotal figure on the Fed board, expressed more caution.

"I continue to believe that further progress will make it appropriate for [Fed] to begin reducing the target range for the federal funds rate this year," he said. "But until that progress materializes, I am not ready to take that step."

Waller discounted worries about a potential recession or sharp economic slowdown if the Fed maintains high interest rates. The central bank jacked up rates in 2022 and 2023 to a top end of 5.5% - the highest level in a few decades - to combat the worst inflation since the early 1980s.

"Fortunately, the strength of the U.S. economy and resilience of the labor market mean the risk of waiting a little longer to ease policy is small and significantly lower than acting too soon and possibly squandering our progress on inflation," he said.

The comments by Waller reflect an emerging rift between top Fed officials on when to cut rates and by how much. A slight majority favor at least three rate cuts this year while the rest prefer two or fewer.

Waller is a pivotal figure on the Fed. He was one of the more hawkish members advocating for higher interest rates when inflation was raging hot. Yet he changed his tune toward the end of last year and became more receptive to rate cuts amid signs the labor market was cooling off.

Now Waller is straddling a middle ground and urging a go-slow approach until the Fed gets a clearer picture of inflation trends.

"Cutting the policy rate too soon and risking a sustained rebound in inflation is something I want to avoid," he said.

Investors are betting the first Fed rate cut will come in either June or July. Lower rates could help goose the economy by spurring more home sales, car purchases and business loans.

-Jeffry Bartash

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03-27-24 1800ET

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