Fed Governor Waller sees potential for multiple interest rate cuts in 2025

Federal Reserve Governor Christopher Waller said Thursday that the central bank could cut interest rates several times this year if inflation declines as expected.

In an interview with CNBC, the politician said that he expected that the first cut could come in the first half of the year, with others to follow until economic data on prices and unemployment they cooperate

“As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening before maybe the markets are pricing in,” Waller said during a “Squawk in the Street” interview with Sara Eisen.

Asked how many they could involve, he replied: “Everything will be driven by data. I mean, if we make a lot of progress, you can do more,” which he said could mean three or four, assuming a quarter percent. point increments.

“If the data doesn’t cooperate, then you’ll go back to two and maybe even go one, if we just have a lot of sticky inflation,” he said.

Traders increased their bets for a slightly more aggressive pace of rate cuts after Waller’s remarks. The market’s implied odds for a May move have risen to around 50%, although June appears to be the best bet, according to CME group data. The expectation for a second reduction at the end of the year has risen to about 55%, or about 10 percentage points higher than before the talk.

At the heart of Waller’s hope for easing is the belief that inflation will fall further as the year goes on, despite several months of data showing stiffness in some key prices. U consumer price index slowed to a core reading of 3.2%, excluding food and energy, for December, down 0.1 percentage points from the previous month, although still well above the 2% target of the Fed.

“At this moment, I think inflation will continue to come towards our goal. Year after year, the stickiness that we saw in 2024 I think will begin to dissipate,” he said. “So I can be a little more optimistic about inflation coming down than the rest of my colleagues, and that’s what drives my outlook on the road to policy.”

At the December meeting, members of the Federal Open Market Committee made two cuts for 2025, although comments after the meeting indicated a cautious and patient approach.

The FOMC meets on January 28-29, with market prices in almost no chance of a move.

“Well, January, we need to see what’s going to happen. … We’re really in no rush to get things done,” Waller said.