Home Finance Fed Governor Waller sees potential for multiple rate cuts in 2025

Fed Governor Waller sees potential for multiple rate cuts in 2025

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Fed's Waller: Rates could fall in the first half of the year if data stay on trend

Federal Reserve Governor Christopher Waller said Thursday that the central bank could cut rates several times this year if inflation slows as he expects.

In a CNBC interview, the policymaker said he expects the first cut could come in the first half of the year, with others to follow as long as economic data on prices and unemployment cooperate.

“As long as the inflation data is good or continues on that path, I definitely see rate cuts happening sooner than markets may be pricing in,” Waller said during a Squawk on the Street interview with Sara Eisen.

When asked how much that could be, he replied, “That will all be determined by the data. I mean, if we make a lot of progress, you could do more,” which he said could mean three or four, assuming of a quarter of a percent. point increases.

“If the data doesn’t cooperate, then you’re back to two and maybe even one, if we get a lot of persistent inflation,” he said.

Traders increased their bets for a slightly more aggressive pace of rate cuts after Waller’s comments. The market-implied odds for a May move rose to around 50%, although June seemed the better bet, according to CME Group data. Expectations for a second reduction by the end of the year rose to about 55%, or about 10 percentage points higher than before he spoke.

At the heart of Waller’s hopes for easing is the belief that inflation will ease further as the year progresses, despite several months of data showing some key prices are stubborn. The consumer price index for December slowed to a core reading of 3.2%, excluding food and energy, down 0.1 percentage point from the previous month but still well above the Fed’s 2% target.

“Right now, I think inflation will continue to move toward our target. I think the stickiness that we saw in 2024 will start to disappear year after year,” he said. “So I’m perhaps a little more optimistic about the decline in inflation than the rest of my peers, and that’s what drives my outlook for policy.”

At the December meeting, Federal Open Market Committee members noted two cuts for 2025, although post-meeting commentary pointed to a cautious and patient approach.

The FOMC next meets on January 28 and 29, with markets seeing virtually no chance of a move.

“Well, January, we’ll just have to kind of see what happens. … We’re really not in a rush to do things,” Waller said.

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