Federal Reserve Governor Christopher Waller said Wednesday that the timing of a interest rate cut of the US central bank “is getting closer”, but the uncertainty about the direction of the economy It does not make clear when the reduction might occur.
“I believe the current data are consistent with achieving a ‘soft landing,’ and I will be looking for data over the coming months to support this view,” Waller said in the text of a speech he is to deliver ahead of an event at the Kansas City Federal Reserve.
“While I don’t think we’ve reached our final destination, I do think we’re getting closer to the point where a cut in the policy rate is warranted,” he said.
Waller noted that economic growth is now proceeding at a “more moderate pace” with the labor market in much better balanceamid a moderation in inflation. But he said uncertainty about how the economy will fare in the coming months makes it difficult to know when the Fed might cut its benchmark interest rate from the current range of 5.25%-5.50%.
Waller said the central bank faces three scenarios of varying probability in the coming months.
The most “optimistic” scenario with a “significant but not high probability” contemplates continuous and constant falls in inflationary pressuresand on that path, “I could imagine a rate cut in the not too distant future,” he said.
But in a more likely scenario, Waller said inflation declines would be more uneven, calling into question whether the Fed was sustainably returning to its 2% target. “In this case, a rate cut in the near future is more uncertain,” he said. The less likely but possible outlook would be a resurgence of inflation, which he did not link to a monetary policy path.
The Federal Reserve will hold its next monetary policy meeting on July 30-31 amid easing price pressures in recent months, fueling market expectations that the central bank may soon cut rates.
While some high-profile economists have said the upcoming meeting is a valid time to reduce ratesmarkets overwhelmingly expect monetary easing to occur at the meeting on September 17-18.
Federal Reserve Chairman Jerome Powell has spoken several times this month but declined to give firm guidance on the timing of rate cuts. He said the central bank is looking for confidence that inflation is returning to 2% before acting.
Waller, in his speech on Wednesday, was particularly optimistic about the state of the labor market. “Right now, the labor market is in a sweet spot” of moderate job growth, with the unemployment rate “close to what is considered its long-term value.”
He added that “in terms of the employment component of the dual mandate, it is quite possible that we can achieve a soft landing,” referring to a scenario in which inflation declines without triggering a painful recession and a sharp rise in unemployment.
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