Federal Reserve Governor Christopher Waller said on Thursday that the surge in consumer prices in January requires careful decision-making on when to begin rate cuts, although he still expects them to begin later this year.
Waller said in a speech in Minneapolis on Thursday, "The strength of the economy and the recent inflation data we have received mean that patience, caution, orderliness, and thoughtful consideration are appropriate. Please choose your favorite synonym. Regardless of which word you choose, it can all translate into an idea: what's urgent?"
Earlier that day, other policymakers at the Federal Reserve also issued similar warnings. Vice Chairman of the Federal Reserve, Philip Jefferson, called on the central bank to be wary of excessive interest rate cuts due to declining inflation. Philadelphia Fed Chairman Patrick Harker and Federal Reserve Director Lisa Cook also emphasized the need to maintain policy composure to avoid premature interest rate cuts that could lead to the failure of previous efforts.
In mid January, investors and some economists were still betting that the Federal Reserve would start cutting interest rates at its meeting from March 19th to 20th. Subsequently, the market significantly lowered its expectations for early rapid interest rate cuts, delaying the bet on the first rate cut until June or July after reports showed that employment and price increases in January were much higher than expected.
Last month, policymakers unanimously voted to keep interest rates in the range of 5.25% to 5.5% unchanged. Federal Reserve Chairman Powell stated that attendees are unlikely to reach the confidence level of the 2% inflation target at the March meeting. The Federal Open Market Committee will update its interest rate forecast at the meeting.
Waller said that given the strong economy and labor market, there is "not much urgency" to relax policies. He also hinted that interest rate cuts could be postponed, and even wait a few more months for the data to be released before lowering again.
He said, "I need to look at the inflation data for a few more months to ensure that January was just an accident and we are still achieving price stability. My guess is that delaying interest rate cuts for a few months without significant economic shocks will not have a substantial impact on the real economy in the short term."
"I believe I have expressed my attitude that taking action too early may waste our efforts on inflation and potentially cause significant damage to the economy," he added.
Waller also stated that the January consumer price report may prove to be an outlier, but "this could also be a warning that significant progress in inflation over the past year may be stalled.". He plans to pay special attention to employment data, wages, and salaries to see if they are slowing down in a way that aligns with the Federal Reserve's 2% inflation target.