Federal Reserve President Christopher Waller said he is “increasingly confident that the central bank's annual inflation target of 2% is within range.”
Waller said in a speech at the Brookings Institution that the Fed is on track to cut interest rates this year unless inflation accelerates.
Inflation topped 9% in June 2022, well above the Fed's target level, but has steadily declined since then, reaching an annual rate of 3.4% in December, according to the latest data from the Labor Department.
To control inflation, the Fed raised interest rates from near zero in March 2022 to a range of 5.25% to 5.5% in July 2023, then held rates unchanged at subsequent meetings as inflation showed signs of easing.
Mr. Waller is a voting member of the Federal Open Market Committee (FOMC), the central bank committee tasked with determining monetary policy.
“I think the FOMC could lower the target range for the federal funds rate this year, unless inflation recovers and remains high,'' Waller said.
Fed Chairman Jerome Powell signaled at the December FOMC meeting that the central bank's interest rate hike drive was nearing an end, sending the market soaring after nearly two years of rising borrowing costs.
A potential interest rate cut is set to collide with the 2024 presidential election, with the economy poised to play a central role in a potential rematch between President Biden and former President Trump.
The Fed has already come under fire from some progressives for not lowering rates, even though the Fed is politically independent and Powell has vowed that any decision to cut interest rates will not be based on politics.
If the Fed chooses to cut rates, it risks angering President Trump and could stimulate the economy before the election. President Trump clashed with Powell throughout his term over the Fed chief's refusal to align interest rates with the president's political goals.
Markets are hoping for a rate cut as early as the March Fed meeting, but economists think that may be too optimistic.
Waller said the Fed is being “more cautious” with monetary policy as it seeks to bring the economy into a rare “soft landing.”
Waller said, “We will keep an eye on whether inflation and the cooling of the labor market will continue to develop without having a negative impact on the economy.''
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