Federal Reserve’s Waller calls for more caution on interest rate cuts after ‘disappointing’ data

Stay informed with free updates

Simply sign up to the US economy myFT Digest — delivered directly to your inbox.

A strong US economy and mixed inflation data support a more gradual pace of interest rate cuts following a big reduction by the country’s central bank last month, a top official at the Federal Reserve said on Monday.

“I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” governor Christopher Waller said in prepared remarks at an event hosted by the Hoover Institution at Stanford University.

The Fed lowered its benchmark interest rate at its last meeting by a larger-than-usual half-point to 4.75-5 per cent, citing a need to “recalibrate” monetary policy in light of retreating US inflation and slower jobs growth.

That narrative has been challenged in recent weeks, with a hotter than expected consumer price index report last week suggesting certain price pressures remain sticky even as overall inflation gradually declines. The data, which Waller described as “disappointing” and “not a welcome development” followed a bumper jobs report that showed businesses adding 254,000 positions in September.

“We have made a lot of progress on inflation over the course of the last year and half, but that progress has clearly been uneven — at times it feels like being on a rollercoaster,” Waller said, as he stressed that there was “little indication of a major slowdown in economic activity” and that the labour market remains “quite healthy”.

Waller is among the most influential voices on the Federal Open Market Committee and votes at every meeting. If the data unfolds as expected, with inflation falling back to target as unemployment inches up from its 4.1 per cent level, he said the central bank could get to a “neutral” policy setting that no longer suppresses growth “at a deliberate pace”.

His comments echo those from John Williams, another leading official who leads the New York Fed, who told the Financial Times last week that he also supported the policy rate moving to a neutral level “over time”. The prospect of two more quarter-point interest rate reductions this year, as indicated in recent projections released by the central bank, was a “very good base case”, Williams said.

Also on Monday, Minneapolis Fed president Neel Kashkari said “further modest reductions” in the policy rate would be appropriate, though he cautioned that decisions would be based on the data.

Incoming reports might be skewed, however, due to the recent hurricanes that have hit the south of the country as well as the factory strike at Boeing, Waller noted.

The next jobs report, which is set to be released just days before November’s US presidential election but during the Fed’s quiet period ahead of its next meeting soon after that, was likely to show a “significant but temporary loss of jobs”, with employment growth reduced by more than 100,000, he added.

Waller said he had grown more confident that the Fed could get inflation back to its 2 per cent target while maintaining a healthy labour market, suggesting little concern about an impending recession.