Federal Reserve Governor Christopher Waller stated on Monday that future interest rate cuts will not be as significant as the significant rate cut in September. He believes that the growth rate of the US economy may still be higher than expected.
Waller cited recent reports on employment, inflation, gross domestic product (GDP), and income, stating that "these data indicate that the economic slowdown may not be as significant as expected
Although we don't want to overreact or overinterpret these data, I believe the overall data suggests that monetary policy should be more cautious in the pace of interest rate cuts than at the September meeting, "Waller said in a speech prepared for a conference at Stanford University.
The recently released US economic data is mixed. After weakening in the summer, the labor market unexpectedly strengthened in September, with slightly higher than expected consumer price index (CPI) inflation indicators and GDP remaining strong.
Recently, the US Department of Commerce also raised the growth rate of Gross National Income (GDI) in the second quarter to 3.4%, which is 2.1 percentage points higher than the previous estimate and closer to GDP growth. The savings rate has also been significantly revised up to 5.2%.
Waller said, "These revisions indicate that the economy is much stronger than previously anticipated, and there are almost no signs of a significant slowdown in economic activity
Call for gradual interest rate cuts in the coming year
The Federal Reserve took an unusual step at its September meeting, significantly lowering the benchmark interest rate by 50 basis points to the target range of 4.75% -5.00%. In the past, the Federal Reserve only did this during times of crisis, as the central bank tended to adjust interest rates by a margin of 25 basis points.
Federal Reserve officials also stated that they may cut interest rates by another 50 basis points at their last two meetings in 2024 and another 100 basis points in 2025. However, Waller did not make a commitment to a specific path for future interest rate cuts.
No matter what happens recently, my baseline is still to gradually lower the policy interest rate over the next year, "he said.
The market had previously expected the Federal Reserve to continue cutting interest rates by 50 basis points in November, but with strong US non farm payroll data in September and higher than expected September CPI, investors are now betting that policymakers will cut interest rates by 25 basis points at that time.
According to the Federal Reserve Watch tool of the Chicago Mercantile Exchange, traders currently expect a high probability of 86.5% for a 25 basis point rate cut in November, 13.5% for no rate cut, and 0 for a 50 basis point rate cut.
Minneapolis Federal Reserve Chairman Kashkari also stated on Monday that it may be appropriate to continue moderate interest rate cuts in the coming quarters.