Fed’s Weller has said that he is not eager to introduce rate cuts in 2024 due to the increased inflation in the first two months of the year.
Waller said there is no rush to cut the policy rate. He even suggested that maintaining the current rate for a longer period might be good to support sustainable inflation of around 2%.
What Does Fed’s Waller Say on Rate Cuts in 2024
Fed’s Waller has said that there might be rate cuts in 2024; however, the Federal Reserve needs to have more evidence of sustained inflation decline before doing so. He adopts a more cautious stance than Fed Chair Jay Powell and Chicago Fed President Austan Goolsbee. Both Federal Reserve officials have said that while the inflation was higher in January and February, it is important to note that the underlying trend of decreasing inflation has stayed the same.
Atlanta Fed president Raphael Bostic has now predicted just one rate cut later this year. This differs from earlier expectations. Moreover, the Federal Reserve decided last Wednesday to keep interest rates unchanged.
It added that it would maintain its forecast of three rate cuts this year while revising its projections for inflation and upward economic growth. The decision of the Federal Reserve to introduce three rate cuts in 2024 is the same as that forecasted in December, as there has been increasing inflation, according to various data. This data has led officials to consider reducing the possible number of rate cuts in 2024.
The core consumer price based on the Consumer Price Index increased by 3.8% annually in February, following a 3.9% increase reported in January. Although these data are lower than the levels near 5.5% last year, they are nearly twice the Fed’s 2% inflation target.
Taking into account the consumer price indexes of the three and six months, excluding volatile food and energy prices, Waller believes that the improvement in inflation has slowed, possibly even stopped.
He stressed that he would like to see a few months of improved inflation data before being sure about starting to introduce rate cuts in 2024, aiming to keep the economy to reach the 2% inflation target. Waller stated that waiting a bit longer to introduce rate cuts will have less risk than acting too quickly. He wants to avoid cutting rates too fast, which might lead to an increase in inflation.
He also mentioned that a crucial data point that he will be monitoring is the release of the February Personal Consumption Expenditures (PCE) price index, which is expected to come out this Friday. The upcoming report includes the “core” PCE inflation, which is the Fed’s favored measure, and it is expected to show that monthly price increases have slowed compared to the previous month.
Fed’s Waller also mentioned that he might reduce the total number of rate cuts in 2024 or delay them further if the recent data does not improve. However, he also noted that he is not yet hurrying to make that decision. During last week’s meeting, several policymakers adjusted their projections, and some of them removed one or more rate cuts from their forecasts. Few policymakers are expecting more than three cuts this year, while the number expecting two or fewer has increased.
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