Federal Reserve governor Chris Waller said Wednesday night that he is in no hurry to cut interest rates after hotter inflation data in the first two months of the year.
“There is no rush to cut the policy rate,” Waller said in a speech in New York.
The recent data “tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%.”
Waller still expects to cut rates this year but isn’t ready to take that step without further evidence that inflation continues to drop.
Waller’s stance Wednesday was more cautious than recent commentary from Fed Chair Jay Powell and Chicago Fed president Austan Goolsbee, who both said over the last week that the fundamental story about falling inflation had not changed despite hotter-than-expected readings in January and February.
Atlanta Fed president Raphael Bostic, however, said Friday that he now expects only one rate cut this year and thinks that cut will happen later in the year than previously expected.
The Fed decided last Wednesday to hold interest rates steady and maintain projections for three rate cuts this year. Officials also raised their outlook for inflation and economic growth.
The decision to stay the course for three rate cuts this year — the same number of cuts forecast in December — comes after sticky inflation data was thought to push officials to scale back the number of cuts for 2024.
Core consumer prices based on the Consumer Price Index showed an annual increase of 3.8% in February after rising 3.9% in January. These readings, while down from levels closer to 5.5% last year, are nearly double the Fed’s 2% inflation target.
Waller said analyzing three- and six-month measures of the Consumer Price Index, excluding volatile food and energy prices, tells him that progress on inflation has slowed and may have stalled.
The Fed governor says he needs to see at least a couple months of better inflation data before he has enough confidence that beginning to cut rates will keep the economy on a path to 2% inflation.
“The risk of waiting a little longer to cut rates is significantly lower than acting too soon,” said Waller. “Cutting the policy rate too soon and risking a sustained rebound in inflation is something I want to avoid.”
Another key reading Waller said he will be watching comes this Friday when the February Personal Consumption Expenditures (PCE) price index is released.
This report contains “core” PCE inflation, the Fed’s preferred measure, which is expected to show monthly price increases moderated from the prior month.
Waller said that he is considering reducing the overall number of rate cuts this year or pushing them further into the future in response to the recent data if things don’t improve. But he also said he isn’t rushing to take that step yet.
At last week’s meeting, several policymakers removed one or more cuts from their projection. The number of policymakers expecting more than three cuts this year decreased, while the number expecting two or fewer increased.
