Fed Governor Waller sees potential for multiple interest rate cuts in 2025

Federal Reserve Governor Christopher Waller said Thursday that the central bank could cut interest rates several times this year if inflation slows as expected.

In an interview with CNBC, the policymaker said he hopes the first cut could come in the first half of the year, with others to follow as long as economic data on prices and unemployment cooperate.

“As long as the inflation data is good or continues on that path, then I can certainly see rate cuts coming sooner than perhaps markets are pricing in,” Waller said during a conference.Squawking in the street“interview with Sara Eisen.

When asked how many that might entail, he responded, “That will all depend on the data. I mean, if we get very far, more could be done,” which he said could mean three or four, assuming a percentage of a quarter. point increases.

“If the data doesn’t cooperate, then we’ll go back to two and maybe even one, if we have a lot of sticky inflation,” he said.

Traders increased their bets on a slightly more aggressive pace of rate cuts following Waller’s comments. Market-implied odds of a move in May rose to around 50%, although June appeared to be the best bet, according to CME Group Data. Expectations for a second reduction by the end of the year rose to about 55%, or about 10 percentage points higher than before he spoke.

At the heart of Waller’s hopes for easing is the belief that inflation will decline further as the year progresses, even though several months of data show stickiness in some key prices. He consumer price index It slowed to a core reading of 3.2%, excluding food and energy, for December, down 0.1 percentage point from the previous month, although still well above the Federal Reserve’s 2% target.

“Right now, I think inflation will continue to move closer to our target. I think the tightness we saw year over year in 2024 will start to dissipate,” he said. “So I may be a little more optimistic about reducing inflation than the rest of my colleagues, and that’s what determines my outlook on the policy path.”

At the December meeting, members of the Federal Open Market Committee set two cuts for 2025, although comments after the meeting pointed to a cautious and patient approach.

The FOMC will next meet on January 28-29, and markets are pricing in almost no chance of a move.

“Well, in January we need to see what’s going to happen… We’re not really in a rush to do things,” Waller said.