Fed’s Waller advocates for caution in policy easing amid solid economic conditions

In a speech overnight, Fed Governor Christopher Waller provided noted that recent economic data has been “uneven,” with both positive signals and areas of concern, but emphasized that the US economy remains on “solid footing.” Employment is near the Fed’s maximum objective, and inflation is approaching the target, despite some disappointing recent inflation figures.

In light of this, Waller expressed caution about the pace of monetary easing, noting that while the September 50bps cut was necessary, the Fed should now proceed with “more caution on the pace of rate cuts.” He reaffirmed his view that the Fed would reduce the policy rate “gradually over the next year.”

Looking ahead, Waller’s baseline forecast still calls for a gradual reduction in the policy rate over the next year. However, he acknowledged uncertainty about the “final destination” for interest rates, with projections for the long-run federal funds rate varying significantly among Fed officials. The range extends from 2.4% to 3.8%, with the median estimate sitting at 2.9%.

While much of the market focus is on the size of rate cuts in the near term, Waller pointed out that the “larger message” from Fed’s economic projections is the extent of policy tightening that still needs to be reversed. If the economy continues its current stable performance, Waller expects that easing will occur gradually over time.

Full speech of Fed’s Waller here.