Federal Reserve Governor Christopher Waller said on Friday that he supports a half-percentage point cut in interest rates at this week’s meeting because inflation is falling faster than he expected.
Waller told CNBC, citing recent consumer and producer price data that show core inflation, the Fed’s preferred measure that excludes food and energy, was below 1.8% over the past four months. The Fed’s annual inflation target is 2%.
“That makes me a little hesitant to say, wow, inflation is softening a lot faster than I thought, and that’s what makes me hesitant to say, look, I think 50 (basis points) is the right thing to do,” Waugh said. Le said in an interview with CNBC’s Steve Risman.
The consumer price index and producer price index both rose 0.2% this month. The 12-month CPI rose 2.5%.
However, Waller said recent data showed a stronger downward trend, giving the Fed more room to ease as it shifts its focus to supporting the weakening labor market.
A week before the Fed meeting, the market overwhelmingly believed in a 25 basis point rate cut. One basis point is equal to 0.01%.
“The point is, we do have room to act, and that’s the signal the committee is sending,” he said.
The Fed’s move reduced by half a percentage point, Or 50 basis points, bringing its main borrowing rate to between 4.75% and 5%. The decision comes as individual officials say another half-percentage point cut could be possible this year, followed by a full percentage point cut in 2025.
Waller said there are a number of scenarios that could play out, each depending on how the economic data plays out.
“When inflation is moving much faster than any of us expected, I am a strong believer in raising interest rates sharply,” he said. “To protect our credibility in maintaining our 2 percent inflation target, I will also I feel the same way on the downside. If the data starts to weaken and continues to weaken, I would be more willing to cut rates aggressively to get inflation closer to our target.
Next week the Commerce Department will release a report on the personal consumption expenditures price index for August, which is the Fed’s preferred measure. The Fed will once again pay attention to inflation data. Federal Reserve Chairman Jerome Powell said on Wednesday that Fed economists expect the measure to show an annual increase in inflation of 2.2%. A year ago, it was 3.3%.
