Fed Can Cut Rates This Year Absent Inflation Rebound, Waller Says

Federal Reserve Governor Christopher Waller said the US central bank should take a cautious and systematic approach when it begins cutting interest rates, a process that can start this year absent a rebound in inflation.

“As long as inflation doesn’t rebound and stay elevated, I believe the FOMC will be able to lower the target range for the federal funds rate this year,” Waller said at a virtual event hosted by the Brookings Institution on Tuesday.

“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he added.

The Fed governor offered some of the most detailed remarks to date around the Fed’s intentions to ease policy this year. While Waller showed an openness to cutting rates, his comments also appeared to push back against market expectations for as many as six rate cuts this year.

“With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past,” he said, pointing to previous economic shocks that have precipitated rapid rate cuts.

Treasury yields jumped in the wake of Waller’s comments. Traders pared back the probability of a rate cut as soon as March as well as the degree of total policy rate declines seen for the full year.