Top Fed official: Inflation fight seems nearly won
WASHINGTON — A top Federal Reserve official said last week that he is increasingly confident that inflation will continue falling this year back to the Fed’s 2% target level, after two years of accelerating price spikes that hurt millions of American households.
The official, Christopher Waller, an influential member of the Fed’s Board of Governors, noted that inflation is slowing even as growth and hiring remain solid — a combination that he called “almost as good as it gets.”
Waller’s remarks follow recent comments from other senior Fed officials that suggest that the central bank remains on track to begin cutting its benchmark short-term interest rate, likely by mid-year. In December, the policymakers collectively forecast that they would cut their rate three times this year. Wall Street investors and many economists expect the first cut in March.
“The progress I have noted on inflation, combined with the data in hand on economic and financial conditions and my outlook has made me more confident than I have been since 2021 that inflation is on a path to 2%,” Waller said in written remarks to the Brookings Institution. The Fed prefers for inflation to be about 2%.
Consumer inflation, according to the Fed’s preferred measure, soared to about 7% in mid-2022, compared with a year earlier. In response, beginning in March 2022 the Fed hiked its key rate 11 times, to its highest level in 22 years. Year-over-year inflation fell to 2.6% in November, the Fed’s measure showed.
Yet in his remarks Tuesday, Waller cautioned that the Fed might not cut rates as urgently as many on Wall Street have envisioned. He noted that the economy is continuing to expand, while inflation cools. “But will it last?” he asked.
Fed officials, he added, will want to see further evidence that inflation is still on track to 2% before embarking on rate cuts.
“We can take our time to make sure we do this right,” he said.
Before Waller spoke, Wall Street investors had placed a 72% likelihood of a rate cut in March, based on futures prices, according to CME’s FedWatch tool. That likelihood slipped to about 65% afterward.
Krishna Guha, an economic analyst at the investment bank Evercore ISI, said investors might have been disappointed by Waller’s remarks after a speech of his in November, when he suggested that falling inflation could lead the Fed to cut rates as early as March.
“We view his comments ... as indicating that he does not expect to push for a March cut and read his arguments in general as more consistent with our baseline of a first cut in May or June,” Guha wrote in a note to clients.