good few months
outlook soft landing Because the economy is no reason for the Fed to rush to cut rates.
this was a solemn message Christopher Waller Fed Director He spoke Tuesday in a livestreamed conversation with David Wessel of the Brookings Institution.
Waller's comments are seen as a pushback against the market's implicit view that the Fed will begin cutting rates in March, followed by five more cuts this year. Instead, Waller emphasized that the Fed will act. “Carefully and methodically” We will continue to pay close attention to incoming data to ensure that we are making progress in reducing inflation to our 2% target.
Asked by Wessel why he thought the Fed should move slowly and gradually, given that inflation has fallen so much, Waller said, “The worst thing that could happen is that all “The situation has reversed and they have already started lowering interest rates.”
The title of Mr. Waller's prepared remarks was: “Almost as good as it gets…but will it last?” it is, 1987 movie starring Jack Nicholson The film is about how a misanthropic writer played by Nicholson, a single mother waitress played by Helen Hunt, and a gay artist played by Greg Kinnear react to an assault and robbery.
Helen Hunt plays Jack Nicholson's waitress at a restaurant in a scene from the movie As Good as It Gets, 1997. (TriStar Pictures/Getty Images)
Waller's speech does not seem to mention the film's plot, but instead continues the theme of the Nicholson film's naming speech. In October he gave a lecture titled: “Something has to give.” title of 2003 nicholson movie The story of an odd couple who find love late in life. In December, Waller titled his follow-up speech, “It's like giving something away.”
Waller said in an October speech that the economy is growing so fast that inflation is falling even more sharply than the Fed expected.he claimed that It was more likely that one of them would give way.. If the economy continues to grow at the strong pace seen in the first three quarters of 2023, inflation is likely to accelerate. If inflation remains low, the economy is likely to slow.
In a speech in December, he argued: Economic growth is beginning to show signs of slowing down, inflation still appears to be falling, and the economy, although slowing, has not plummeted toward recession. In other words, Waller expressed his view that the economy is heading for a so-called “soft landing.”
Waller said Tuesday he was even more confident that growth and inflation would continue “moderately.”So he Still in the “soft landing” camp.
No support conditions for early and frequent rate cuts
But he differed from many soft-landers in his attitude toward the timing and scope of rate cuts. While many soft-landing proponents believe the Fed should and will start lowering rates at its March meeting, Waller stressed there is no need to rush into action.On the contrary, he said The Fed has good reason to wait for more data and proceed slowly..
Mr. Waller's position can be understood as a reaction to the position of many analysts that the Fed should start lowering rates soon, since the Fed has won a supposed victory against inflation. A good example of this view is: new york times columnist paul krugman.
“Over the past six months, the core personal consumption expenditure deflator – say that five times as fast – has increased at an annualized rate of just 1.9 percent. Under That's the Fed's goal, and more complex measures would bring it closer to 2%.Basically, the war on inflation is more or less over and we have won.'' Krugman I have written recently. “So why keep interest rates so high?”
Here's Waller's answer: There is no guarantee that the rise in inflation will continue.. He is confident that will continue, but argues that more data is needed to confirm this.
The glorious truth about soft landings
Importantly, when Waller says he can conclude that we should start cutting interest rates, he says: future tense. “Time will tell,” Waller said twice in his speech. The Fed “needs to assess” whether progress is sustainable “before initiating any decisions.” This isn't coming from someone who thinks the Fed will be ready to cut rates in two months.
Waller argues that A soft landing means the Fed can wait to cut rates..
“Before, we had recessions, we had severe negative shocks, and the FOMC needed to act quickly and significantly. That's not the situation we're in right now,” Waller said during a Q&A. “You can take your time and make sure this is done correctly”
Waller said much the same thing in prepared remarks:
I believe that when the time is right to start cutting rates, we can and should do so systematically and carefully. In many previous cycles that began after a shock to the economy threatened or caused a recession, the FOMC cut rates reactively, quickly and often significantly. But this cycle, with economic activity and the labor market in good shape, and inflation gradually declining to 2%, we are unlikely to act quickly or cut back as quickly as we have in the past. I can't see any reason. A healthy economy provides flexibility to lower (nominal) policy rates to keep real policy rates at an appropriately tight level.
Perhaps the most important moment was when I answered a question from Wessel.
“It seems like you would rather do that. It's better to wait too long than too soon.asked Wessel.
“Yes,” Waller said.
This is a point we have made many times. If we're headed for a soft landing, There is no trigger for a rate cut early this year.. There's nothing forcing the Fed to cut rates quickly or often. A more prudent approach would be to see how the economy develops this year before implementing the first rate cut, and then see how it reacts to that rate cut before acting again.
In other words, the Fed easy rider Regarding this year's interest rate policy. Interest rate cuts can wait.
