Federal Reserve Governor Christopher Waller doubled down on more rate cuts and cooling inflation following higher price projections from the central bank and growing expectations among investors that the Fed may not do much cutting at all this year.
“I believe that inflation will continue to make progress toward our 2 percent goal over the medium term and that further [interest rate] reductions will be appropriate,” he said in Paris at an event from the Organization for Economic Cooperation and Development (OECD), a policy group representing wealthy economies.
Waller pointed to smoothly moderating prices in the six-month core personal consumption expenditures (PCE) price index, which fell to a 2.4-percent at an annual rate in November and have been descending over the past year.
He also brushed aside concerns that tariffs expected from the incoming Trump administration would add to inflation, saying they likely wouldn’t have a “significant or persistent effect” and they likely wouldn’t affect his views on policy. Tariffs did not produce acute inflation during the first Trump administration.
Waller’s confidence about lower prices counters a substantial upward revision by the Fed in December for the path of inflation over the course of this year. The Fed increased its inflation projection to 2.5 percent from 2.1 percent for 2025, causing markets to buckle. It also predicted lower unemployment and higher gross domestic product (GDP) while halving the number of quarter-point rate cuts it expected to execute.
The projections came as a surprise after the Fed delivered a definitive half-point rate cut in September and messaging that suggested the post-pandemic inflation had been all but slayed.
Waller noted advances in worker productivity across the U.S. economy in the wake of the pandemic, remarking that it could be responsible for more than half of total GDP growth in the US since 2019. Higher productivity levels could translate to a higher neutral interest rate in the long term.
Reasons for the productivity increase may include better worker-employer matching due to increased job churn during the pandemic, more worker training due to a labor shortage, more remote work, and more business creation.
In his speech, Waller also pointed to a number of risks facing the global economy, including wars in the Middle and Europe, aging demographic trends, and increasing skepticism toward globalization.
