US Federal Reserve Governor Christopher Waller on Thursday said he wants to start cutting US interest rates next month and “fully expects” more rate cuts to follow to bring the Fed’s policy rate closer to a neutral setting, stepping up his call to lower short-term borrowing costs.
“Based on what I know today, I would support a 25 basis point cut” at the upcoming Sept. 16 to Sept. 17 meeting of the rate-setting Federal Open Market Committee (FOMC), he told the Economic Club of Miami.
“While there are signs of a weakening labor market, I worry that conditions could deteriorate further and quite rapidly, and I think it is important that the FOMC not wait until such a deterioration is under way and risk falling behind the curve in setting appropriate monetary policy,” he said.
Photo: Bloomberg
Waller said he did not think the Fed would need to cut rates more than a quarter point next month, although he said that view could change if the US Department of Labor jobs report for this month, due out on Friday next week, points to a substantially weakening economy, and inflation remains well-contained.
However, “the time has come to ease monetary policy and move it to a more neutral stance,” he said, adding that it would be about 3 percent, about 1.25 to 1.50 percent points below the current policy rate range of 4.25 percent to 4.50 percent.
“I don’t believe that policy has fallen substantially behind the curve, but one way to signal that I don’t intend to allow that happen is to talk about where we go after September,” he said. “As I stand here today, I anticipate additional cuts over the next three to six months, and the pace of rate cuts will be driven by the incoming data.”
Answering questions after his prepared speech, Waller said that means “it could be a sequence of cuts; it may be a couple, then you may want to pause...we know we want to head towards neutral; it’s just a question how fast we get there.”
Any upward price pressures from tariffs should peak by the end of this year or early next, he said.
“I fully expect more rates cuts as the labor market continues to soften; growth is probably still going to be slow in the second-half of the year,” he said. “Because monetary policy tends to work with these kind of long lags, you don’t want to wait.”
Waller and Fed Governor Michelle Bowman both dissented on July 30 from the Fed’s decision to keep short-term borrowing costs unchanged, citing their worries about the labor market weakening.
Both were appointed by US President Donald Trump and are said to be under consideration as possible successors to Fed Chair Jerome Powell, whom Trump has been publicly pressuring to lower interest rates dramatically.
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