Federal Reserve Governor Christopher Waller’s recent remarks have reignited discussions over the future direction of US interest rate policy.
After the Federal Reserve lowered rates by a substantial half-percentage point in September, many experts anticipated further reductions at the central bank’s next meeting in November. However, strong employment data and mixed inflation figures have prompted a more cautious approach.
In September, nonfarm payrolls rose by 254,000, significantly up from the 159,000 increase in August, while the unemployment rate dipped to 4.1%. Inflation, meanwhile, edged lower, with consumer prices rising 2.4% over the past year, down from 2.6% in August but still slightly above economists’ expectations. This combination of positive jobs data and steady inflation has led market participants to scale back expectations for aggressive rate cuts.
According to the CME FedWatch tool, there is now an 84% chance that the Fed will cut rates by 25 basis points next month, compared to a previous expectation of up to 50 basis points.
Waller, speaking at a Hoover Institution event, emphasized that recent economic data suggests a slower pace of cuts may be warranted.
“I view the totality of the data as saying monetary policy should proceed with more caution,” Waller said.
He stressed the importance of maintaining economic momentum, saying the US economy is in a “sweet spot” and that his goal is to keep it there.
Minneapolis Fed President Neel Kashkari also echoed Waller’s sentiments, suggesting that “further modest reductions” in interest rates would be appropriate in the coming months as the Fed works to balance inflation and job growth.
On the other hand, some, including prominent investor Stanley Druckenmiller, caution against the Fed moving too quickly. Druckenmiller highlighted strong corporate profits and tight credit conditions as signs that the Fed’s current policy might already be appropriately restrictive.
The debate over the Fed’s next move is far from settled, with some analysts, including Jason Pride from Glenmede, suggesting that even the anticipated 25-basis-point cut in November might be questioned.
The Street and Financial Times contributed to this report.
