Federal Reserve Governor Waller: Supports pausing interest rate cuts until inflationary pressures subside

The Zhitong Finance APP noted that Federal Reserve Governor Christopher Waller stated that recent economic data supports keeping interest rates unchanged, but if inflation performs similarly to 2024, policymakers may "reconsider lowering rates at some point this year."

Waller said in a speech in Sydney on Tuesday, "If the winter slowdown this year is only temporary, as it was last year, then further easing of policy would be appropriate. But until the situation becomes clearer, I tend to keep the policy rate unchanged."

The Federal Reserve lowered rates by one percentage point in the last few months of 2024 and then kept rates unchanged at the January policy meeting. New data showed that the Consumer Price Index rose by 0.5% in January, the largest increase since August 2023, making this decision appear correct.

Waller described the data released last week as "slightly disappointing," but emphasized that the inflation indicator favored by the Federal Reserve—the Personal Consumption Expenditures Price Index—was not as concerning.

He cited estimated figures indicating that the core PCE, excluding food and energy, might rise by about 0.25% in January, up 2.6% from the same period last year.

Waller also expressed skepticism, along with another Federal Reserve official, about whether the CPI data had been appropriately adjusted for seasonal factors.

Waller stated, "In recent years, inflation data seems to show a higher trend at the beginning of the year. This trend raises doubts about whether the inflation data has 'residual seasonality,' meaning that statisticians have not fully corrected for certain obvious seasonal fluctuations in prices."

The U.S. Bureau of Labor Statistics attempts to eliminate the effects of certain seasonal factors (such as climate, production, or recurring patterns of price increases) from the data to allow for meaningful monthly inflation comparisons.

Philadelphia Fed President Patrick Harker also expressed similar concerns on Monday. "Over the past decade, the CPI inflation rate in January has unexpectedly risen 90% of the time," Harker said. "My guess is that seasonal adjustments are struggling to keep up with the rapidly changing economy, and we need to analyze potential trends from monthly noise."

Waller stated that he would monitor the data before deciding whether residual seasonal factors or "other issues" were causing the elevated readings.

"In either case, the data does not support lowering the policy rate at this time," he said. "But if the situation in 2025 is similar to that in 2024, then lowering rates at some point this year would be appropriate."

Policy Paralysis

The Federal Reserve Governor also stated that the economic situation is robust and the labor market is in "the best shape."

Waller acknowledged that the policies of the new Trump administration bring a degree of uncertainty, but he warned against delaying the Federal Reserve's response to economic data because of this.

"Even in the face of significant economic outlook uncertainty, we need to act based on the data that will be released," he said. "Waiting for economic uncertainty to dissipate will only lead to policy paralysis."

Waller also reiterated his expectation that tariffs imposed by the U.S. government "will only slightly raise prices and will not be sustained."

He acknowledged that the impact of these policies on prices might be greater than he had anticipated, but added that "other policies under discussion may have positive supply effects and exert downward pressure on inflation." ”