A top Federal Reserve official has warned that the central bank’s progress on curbing inflation “may be stalling”, even as he threw his support behind a cut in interest rates later this month.
Christopher Waller, a governor on the policy-setting Federal Open Market Committee, said on Monday that he backed the central bank lowering rates when it next gathers on December 17-18. He said that still-elevated borrowing costs were curbing demand across the world’s biggest economy, contributing to easing price pressures.
Still, Waller noted that “if the data we receive between today and the next meeting surprise in a way that suggests our forecasts of slowing inflation and a moderating but still-solid economy are wrong, then I will be supportive of holding the policy rate [unchanged in December]”.
He added that there were some signs that progress towards cooling inflation back to the Federal Reserve’s 2 per cent target “may be stalling”. The consumer price index rose at an annual rate of 2.6 per cent in October, according to official data.
Fed officials will on Friday receive an important update on the state of the labour market with November’s payrolls report, as well as new inflation data next week. Policymakers will also receive fresh data on retail sales — a crucial driver of the US economy — on the first day of this month’s two-day policy meeting.
Officials have recently turned more optimistic on the trajectory of the economy, having previously worried that the labour market was heading for a sharp slowdown. They noted in a detailed summary of November’s meeting, released last week, that there had been “no sign of rapid deterioration” across the labour market.
The more sanguine outlook — coupled with renewed concerns about persistent price pressures that have kept monthly inflation readings more elevated than expected — has led to widespread support among Fed officials to move “gradually” as it considers how quickly to return its monetary policy settings to a “neutral” setting that neither stimulates or suppresses demand.
“I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out yet it keeps slipping out of my grasp at the last minute,” he said in prepared remarks at a conference in Washington. “But let me assure you that submission is inevitable — inflation isn’t getting out of the octagon.”
While he expects rate cuts to “continue over the next year”, Waller also made clear that the pace of those cuts will probably slow over time.
The comments from Waller come in the final week before a scheduled communications blackout ahead of the December meeting.
A quarter-point cut in December would mark the third-straight gathering at which the Fed has lowered interest rates, having kicked off the process in September with a half-point reduction. That would lower the federal funds rate to a new target range of 4.25-4.5 per cent.
