Federal Reserve Governor Christopher Waller said Friday he supported a half-percentage point rate cut at this week’s meeting because inflation is falling even faster than he expected.
Citing recent data on consumer and producer prices, Waller told CNBC that the data shows core inflation, excluding food and energy, in the Fed’s preferred measure has been below 1.8% for the past four months. The Fed targets annual inflation of 2%.
“That’s what kind of held me back from saying, wow, inflation is coming down a lot faster than I thought, and that put me over the edge into saying, look, I think it would happen.” [basis points] is the right thing to do,” Waller said during an interview with CNBC’s Steve Liesman.
Both the consumer and producer price indexes showed an increase of 0.2% for the month. On a twelve-month basis the CPI was 2.5%.
However, Waller said the more recent data shows an even stronger trend down, giving the Fed room to ease further as it shifts its focus to supporting the weakening labor market.
A week before the Fed meeting, markets had overwhelmingly priced in a 25 basis point cut. One basis point is equal to 0.01%.
“The point is that we have room to move, and that is what the commission is indicating,” he said.
The Fed’s move to cut by half a percentage point, or 50 basis points, brought the key interest rate back to a range between 4.75% and 5%. Along with the decision, individual officials pointed to the likelihood of another half-percentage point of cuts this year, followed by a full percentage point of cuts in 2025.
Fed Governor Michelle Bowman was the only member of the Federal Open Market Committee to vote against the cut, instead favoring a smaller cut of a quarter percentage point. She released a statement Friday explaining her opposition, marking the first “no” vote by a governor since 2005.
“While it is important to recognize that meaningful progress has been made in reducing inflation, while core inflation remains at or above 2.5 percent, I see a risk that the Committee’s larger policy action could be interpreted as premature declaration of victory over our price stability. mandate,” Bowman said.
As for the future path of interest rates, Waller indicated that there are a number of scenarios that could unfold, with each scenario depending on how economic data works.
Prices in the futures markets shifted after Waller spoke, with traders now estimating a 50 to 50 percent chance of a further half-percentage point cut at the Nov. 6 to 7 meeting, according to CME Group’s FedWatch.
“I was a big believer in big rate hikes when inflation was moving much, much faster than any of us expected,” he said. “I would feel the same way about protecting our credibility by maintaining a 2% inflation target. If the numbers start to soften and stay soft, I would be much more willing to be aggressive with rate cuts to lower interest rates. inflation closer to our target.”
The Fed will look at inflation data again next week when the Commerce Department releases its August report on the personal consumer expenditures price index, the measure of central bank preference. Chairman Jerome Powell said Wednesday that Fed economists expect the measure to produce annual inflation of 2.2%. A year ago this was still 3.3%.