Fed’s Waller Seeks Multiple Months of Stable Inflation Before Rate Cuts

James Hyerczyk
Published: May 21, 2024, 13:23 GMT+00:00

Key Points:

  • Waller suggests no further rate increases might be needed.
  • Waller calls for more data before considering rate cuts.
  • Fed's recent actions temper demand-driven inflation pressures.
  • Robust payroll gains clash with a softening labor market.
  • Inflation trends hint at stability, but Waller remains cautious.
Federal Reserve Rate Cuts - Waller

Fed Governor Waller Maintains Cautious Stance

In a recent address at the Peterson Institute for International Economics in Washington, Federal Reserve Governor Christopher Waller expressed a cautious stance on the need for further rate hikes, given the latest economic indicators suggesting inflation pressures are easing. Waller, known for his hawkish views, emphasized that while further policy tightening might not be necessary, rate cuts are not on the immediate horizon.

Current Economic Indicators

Waller pointed to several economic data, including flat retail sales and a slowdown in manufacturing and services sectors, which indicate that the Fed’s recent rate increases have mitigated some demand-driven inflationary pressures. This cooling effect comes after inflation rates soared to the highest in over four decades. Despite robust payroll gains, signs of a relaxing labor market are emerging, aligning more closely with the Fed’s 2% inflation target.

Labor Market and Monetary Policy Stance

Even as the labor market remains strong, with significant payroll gains, the rate of job departures and other internal metrics suggest a shift towards a less strained labor environment. However, Waller remains reserved about easing monetary policy soon. He stated, “In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”

Recent inflation measurements, including April’s consumer price index, show a year-over-year increase of 3.4%, a slight decrease from the previous month. This deceleration in inflation, though modest, signals potential stability but requires more consistent evidence before any policy adjustment. Waller’s critical stance on the recent progress reflects a cautious optimism, grading the inflation report as “C-plus.”

Market Forecast

With the economic landscape showing tentative signs of stabilizing inflation without additional rate hikes, and Waller’s call for sustained positive data before considering rate reductions, the outlook remains cautiously optimistic. Traders should watch for further inflation reports and labor market data to gauge the potential shifts in monetary policy, keeping in mind that significant policy easing seems unlikely in the immediate future.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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