Attitude turns hawkish? Federal Reserve "voting member" Waller: inclined to pause interest rate cuts until inflation returns to decline
Waller stated that the latest CPI data is "somewhat disappointing," and he prefers to keep the policy interest rate stable until the situation becomes clearer. However, Waller did not rule out the possibility of a rate cut later this year, stating that he will closely monitor data in the coming months. If inflation repeats last year's "high open, low close" pattern, then a rate cut at some point this year would be appropriate. Waller also downplayed the inflation risks posed by Trump's tariffs, highlighting the internal divisions within the Federal Reserve regarding the impact of tariffs
Federal Reserve "star voter" Waller changes his tune, stating that recent economic data supports pausing interest rate cuts, and he leans towards holding steady in the short term, directly pointing to clearer inflation data.
On Tuesday, Federal Reserve Governor Christopher Waller stated in a speech in Sydney that the latest CPI data is "somewhat disappointing," and he prefers to keep the policy rate stable until the situation becomes clearer.
Waller believes that the overall performance of the U.S. economy is robust, and the job market is in an "ideal state." This assessment supports the Federal Reserve's current policy stance.
However, Waller emphasized that the Federal Reserve is more focused on the optimistic forecast for the PCE price index. He indicated that the core PCE in January may rise by about 0.25% month-on-month and 2.6% year-on-year.
Waller also questioned the seasonal adjustments of the CPI data, pointing out the pattern of higher inflation readings typically occurring at the beginning of the year in recent years. He stated that he would closely monitor data in the coming months to assess whether last year's pattern would repeat—namely, higher inflation in the first quarter followed by a decline.
Waller did not rule out the possibility of interest rate cuts later this year. He stated, "If the situation in 2025 is similar to that in 2024, then it would be appropriate to cut rates at some point this year."
Last month, Waller stated that the CPI data for December in the U.S. was very good, and if more such data continues to come in, it is possible to see the Federal Reserve cut rates in the first half of this year, and even the possibility of a cut in March cannot be ruled out. If significant progress is made in the data, there could be three or four rate cuts this year.
Disagreements within the Federal Reserve on Trump's tariffs
In his speech on Tuesday, Waller also downplayed the inflation risks posed by Trump's tariffs. He stated that Trump's tariffs "will only moderately raise prices and will not be persistent."
In contrast to Waller, Chicago Fed President Austan Goolsbee and Cleveland Fed President Beth Hammack are more concerned that Trump's trade policies will have a lasting impact on U.S. prices.
Federal Reserve Chairman Powell maintains that the Federal Open Market Committee (FOMC) currently does not have enough evidence to determine how trade policies will affect price trends.
Waller stated that while there is uncertainty about what economic policies the White House will introduce, monetary policy cannot be indefinitely postponed:
"If new data supports further rate cuts or a pause in rate hikes, then regardless of how certain government policies are, we should do so... Waiting for economic uncertainty to dissipate will only paralyze policy."