Fed governor bolsters hopes for rate cuts in 2024

Strong state of US economy means there is no need to rush, argues Christopher Waller

Christopher Waller
Christopher Waller
St Louis Fed

A governor of the Federal Reserve has said the US central bank is likely to cut interest rates in 2024. 

In a speech on January 16, Christopher Waller said the Federal Open Market Committee (FOMC), of which he is a voting member, was open to lowering interest rates this year: “The data we have received [in] the last few months is allowing the committee to consider cutting the policy rate in 2024.” 

He went on to say that “as long as inflation doesn’t rebound and stay elevated, I believe the FOMC will be able to lower the target range for the federal funds rate this year”. He said the number and timing of rate cuts would depend on incoming information. 

However, he also said that he believed policy is currently set appropriately: “It is restrictive and should continue to put downward pressure on demand to allow us to continue to see moderate inflation readings.” 

The governor said he uses the six- and three-month core measures to gauge current levels of inflation. He added that six-month personal consumption expenditure (PCE) inflation is running close to the Fed’s goal of 2%. 

Waller said he was as confident as he has been since 2021 that the economy was on track to enable the Fed to reach its goal of cutting rates: “I am becoming more confident that we are within striking distance of achieving a sustainable level of 2% PCE inflation.” Waller said the risks from inflation and from changes in monetary policy precipitating a recession or increased unemployment were now more finely balanced.

He said that growth in the labour supply and a lowering of demand would bring the jobs market into greater balance. Upticks in wage growth and employment should be viewed as “largely noise against a trend of ongoing moderation that supports progress toward 2% inflation”. 

Waller said current policy is working to slow economic momentum. “Financial conditions remain restrictive and continue to have the desired effect of being a drag on economic activity to put downward pressure on inflation,” he said. 

The governor was optimistic when looking at recent economic conditions. “Real gross domestic product is expected to have grown between 1% and 2% in the fourth quarter [of 2023], unemployment is still below 4%, and core personal consumption expenditure inflation has been running close to 2% for the last six months,” he said. “For a macroeconomist, this is almost as good as it gets.”

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