(Bloomberg) — Federal Reserve Governor Christopher Waller said recent economic data signals policymakers can approach subsequent interest-rate reductions with less urgency than they applied at their gathering last month.
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“I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said in prepared remarks on Monday at a conference at the Hoover Institution in Stanford, California.
He added that if current economic conditions continue, “we can proceed with moving policy toward a neutral stance at a deliberate pace.” A neutral policy rate is one that neither promotes or inhibits economic growth.
Waller pointed to the most recent labor-market figures, which showed a drop in the unemployment rate amid robust hiring, and upward revisions to job gains in prior months. Meanwhile, Waller called the latest inflation data, which came in above forecasts, “disappointing.”
Those data points followed the Fed’s decision to cut its key policy rate by a half percentage point in September, an outsize move that officials said was aimed at maintaining the strength of the labor market.
Waller said the economy is on solid footing, with employment near the Fed’s objective and inflation approaching policymakers’ 2% target. But, he added, recent data — including upward revisions to economic growth and an increase in job openings — are signaling the economy may not be slowing as much as desired.
The Fed will issue its next interest-rate decision at the conclusion of its Nov. 6-7 meeting. During a question-and-answer session following his speech, Waller declined to offer details on what a “gradual” pace of cuts would look like.
In his prepared remarks, Waller said he would be monitoring whether data due before then “confirms or undercuts my inclination to be more cautious about loosening monetary policy.” He said October payrolls, which are due Nov. 1, could be reduced by more than 100,000 due to recent hurricanes and a workers’ strike at Boeing Co.
Meanwhile, Waller said his baseline calls for reducing rates gradually over the next year. He referenced Fed policymakers’ projections released in September, which estimated an additional 1.5 percentage points in interest-rate cuts by the end of 2025, according to the median forecast.
“There is a considerable extent of policy accommodation to remove, and if the economy continues in its current sweet spot, this will happen gradually,” Waller said.
Waller said under a scenario where inflation unexpectedly escalates, policymakers “can pause rate cuts until progress resumes and uncertainty diminishes,” provided the labor market isn’t deteriorating. He said another less likely scenario, given recent data, is that policymakers would cut rates more quickly in response to inflation that falls below their target, a significant labor-market downturn or both.
(Updates with more details from speech throughout. An earlier version corrected the second paragraph to reflect the event is Monday, not Tuesday)
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