The Federal Reserve could cut interest rates three or four times this year if inflation data cooperates, with the first rate cut potentially occurring by July, a senior bank official said Thursday. .
Data released on Wednesday showed that the headline consumer inflation rate rose for the third straight month in December due to soaring energy prices, but the widely watched indicator eased slightly and underlying inflation eased. I have high hopes that this will be the case.
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“Inflation was very good yesterday,” Fed Director Christopher Waller told CNBC, noting that underlying price pressures, excluding volatile food and energy costs, were close to target on a monthly basis. did.
The U.S. central bank has been lowering interest rates in recent months, cutting them entirely since September to support the labor market.
But headline inflation has been rising in recent months, raising concerns that the Fed may have to pause further rate cuts through much of 2025.
In their most recent rate decision in December, Fed policymakers voted to cut rates by a quarter of a percentage point in a range of 4.25 to 4.50, making them just two cuts this year.
Waller, a standing voting member of the Fed’s rate-setting committee, told CNBC he could support up to four rate cuts this year, depending on the data.
“I may be a little more optimistic about lower inflation than some of my colleagues,” he said, adding that if the data isn’t “cooperative,” the Fed could return to one or two rate cuts this year. He added that there is.
In response to a question about the timing of a rate cut, Waller said it was “reasonable” to think a rate cut could happen in the first half of this year if the statistics come out as expected.
He also did not rule out supporting a rate cut soon after the Fed’s March decision if the data supports that.
“We are certainly going to see a rate cut sooner than the market is pricing in,” he said.
Futures traders expect there to be about a 70% chance that the Fed will remain on hold until its March rate decision, and about an 80% chance that it will cut rates twice or less this year, according to CME Group data.
Tariff inflation shock unlikely
Waller was also asked about the possible impact of President-elect Donald Trump’s tariff proposals, including his threat to impose steep tariffs of up to 20% on all goods imported into the United States.
Many economists say these policies could push up prices, at least in the short term, but President Trump and his allies are either ignoring these concerns or redirecting any pressure to other policies such as energy deregulation. He claims to fight against it.
“I don’t think tariffs will have a significant or lasting impact on inflation,” Waller said. “But we’ll have to wait and see what happens.”
He said most Wall Street analysts agree that President Trump’s tariff plans will have “some limited and short-term impact on prices” but will not lead to “sustained” inflation. He said he expected it.
