Throughout his recent address at the Kansas City Fed, Federal Reserve Governor Christopher Waller indicated that forthcoming interest rate cuts depend on inflation and employment trends. While still monitoring the data, Waller expressed confidence in achieving a smooth economic landing in the near future.
Here are three potential scenarios that Waller outlined for the days ahead:
- Scenario one: If the already positive inflation data sees a further upturn, a rate cut may be imminent.
- Scenario two: Fluctuating data, yet still pointing towards moderation, could justify a policy adjustment.
- Scenario three: An unexpected surge in inflation could lead to a tighter monetary policy stance.
Waller believes the first two scenarios are the most probable, with the third being the least likely. With inflation showing signs of cooling and wage growth stabilizing, he highlighted that current conditions support a move towards lowering the policy rate.
Contrary to the market’s fixation on determining the exact timing of the rate cut, Waller emphasized that FOMC members focus more on when economic conditions are conducive to such a move. He indicated that a potential downturn is impending based on the progress made in reducing inflation in recent months.
His sentiments align with those expressed by New York Fed President John Williams, who also sees positive movements in inflation data. The markets are already pricing in a more accommodative Fed, with traders expecting at least one rate cut before the end of the year.
Waller’s shift to a more dovish stance from his previous hawkish views reflects the evolving economic landscape. As conditions continue to support a move towards monetary easing, Waller’s remarks signal an impending shift in the Fed’s policy stance. Keeping an eye on inflation and employment figures, the possibility of a rate cut in the near future looks increasingly likely.
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