Federal Reserve Governor Waller still believes that there may be two to three rate cuts in 2025 and does not support a rate cut in March

On Thursday, influential Federal Reserve official and Governor Christopher Waller stated that he would not support a rate cut in March but believes that there could be two or even three rate cuts this year.

Waller expressed at the Wall Street Journal's CFO Network Summit that he hopes to see more data regarding economic conditions before implementing further rate cuts, especially considering the changes in trade policy under the Trump administration.

Previously, Waller had indicated that Federal Reserve policymakers needed to ignore the one-time price level increases caused by tariffs. However, Waller recently stated that the impact of tariffs has been "far greater than he initially expected," which could create some challenges in trying to distinguish pure price level trends from tariff effects.

Waller referred to this as a so-called "signal extraction problem." "You get this data point and then try to figure out which are fundamental signals and which might just be tariff noise, and that's difficult."

Waller also noted that the uncertainty surrounding tariff policies has led to widespread caution among the private sector and households. He mentioned that this uncertainty is not only reflected in sentiment data but may also begin to show up in retail sales and capital expenditures.

Waller pointed out that so far, the Federal Reserve has been able to implement what he considers "good news rate cuts," which are rate cuts taken in response to declining inflation. However, there is also the possibility of "bad news rate cuts," which are rate cuts taken when the economy begins to weaken excessively or the labor market deteriorates.

Waller stated, "I still believe that the good news rate cuts have been implemented. But we are seeing many signs in soft data that the actual economy, labor market, production, GDP, consumption, etc., may not perform as well. But these have not yet fully manifested in hard data, and that is what we must respond to. We cannot base policy solely on anecdotes."

Therefore, Federal Reserve policymakers can only take a wait-and-see approach to determine whether a recession in the U.S. economy will manifest itself in a significant way in employment data or GDP. "So we need more data to clarify this. I want to see how the inflation data changes in February—want to see what further impacts tariff policies will bring:

If the data shows further economic slowdown, then a bad news rate cut may occur.

If the labor market and overall economy still appear solid, then policymakers can continue to closely monitor inflation. If they believe inflation is returning to target, they can begin to cut rates. I wouldn't say there will be a rate cut at the next meeting, but it is entirely possible in the future.

After cumulative rate cuts of 1 percentage point in the last few months of 2024, the Federal Reserve remained steady at its January meeting, and the market widely expects the Federal Reserve to also maintain a wait-and-see stance at the FOMC meeting on March 18-19. Several Federal Reserve officials have already indicated that they hope to see more progress in cooling inflation before cutting rates again