Fed’s Waller suggests rate cuts may be nearing

In a speech today, Fed Governor Christopher Waller stated that Fed is “getting closer” to the time when a cut in the policy rate is warranted. He noted that Q2 data on inflation and the labor market has moderated, suggesting that “progress toward price stability has resumed.” Waller believes the current data align with the goal of achieving a soft landing and will be watching for further data in the coming months to support this view.

Waller outlined three scenarios for the future. The first, and most optimistic, scenario is that Fed continues to receive “very favorable” inflation data, leading to a “nice run” that began in May. In this case, Waller could “envision a rate cut in the not-too-distant future.”

The second scenario, which Waller considers “more likely to occur,” involves inflation data coming in “uneven” but still indicating overall progress in disinflation. Under this scenario, a rate cut in the near future is “more uncertain.”

The third scenario involves a “significant resurgence in inflation” in the second half of the year, but Waller assigns a “low probability” to this outcome.

Given his belief that the first two scenarios are the most probable, Waller concludes that the “time to lower the policy rate is drawing closer.”

Full speech of Fed’s Waller here.