Federal Reserve Governor Christopher Waller said the central bank is “close” to cutting interest rates as borrowing costs remain at their highest in 23 years.
Waller said at an event at the Kansas City Fed on Wednesday. was suggested Barring any major changes in inflation and employment data, the Fed is on track for a rare “soft landing.”
“We believe the current data is consistent with achieving a soft landing and will look for data in the coming months to support this view,” Waller said.
“So while I don’t believe we have reached our final destination, I do believe we are approaching a time when a cut in policy rates would be justified.”
The post-pandemic surge in inflation prompted the Fed to raise interest rates from near zero in March 2022 to a range of 5.25% to 5.5% last July.
The central bank indicated at its December meeting that it intended to start cutting interest rates later this year, but a temporary rise in inflation has meant that the timeline for rate cuts is slower than markets had initially expected.
“These twists and turns in the economic data have sent everyone’s expectations back and forth about when the FOMC will start cutting rates and how many cuts there will be this year,” Waller said.
“The Committee’s consistent view is that there is no urgency to lower interest rates until the Committee is confident that inflation has sustainably recovered to the Federal Reserve’s mandated inflation objective of 2 percent,” Waller said.
Inflation peaked at 9% in July 2022 but has since fallen significantly. The Labor Department’s latest data, released last week, showed the Consumer Price Index (CPI) rose 3% year-on-year in June, down from 3.3% in May.
June also marked the first month since the pandemic began that prices fell.
A majority of interest rate traders don’t expect the central bank to cut interest rates at its July meeting later this month, but see the first rate cut coming at the next Fed meeting in September. That’s according to interest rate probabilities analyzed by the Fed. CME FedWatch.
Waller said in May that data showed inflation was “not accelerating” and that further rate hikes were “probably unnecessary.”
