Christopher Waller, governor of the US Federal Reserve, during the Fed Listens event in Washington, DC, on Friday, September 23, 2022.
Al Drago Bloomberg Getty Images
Federal Reserve Governor Christopher Waller said on Friday that he supported a half-percentage-point rate cut at this week’s meeting as inflation fell faster than expected.
Citing recent data on consumer and producer prices, Waller told CNBC that the data showed core inflation, excluding food and energy, in the Fed’s preferred measure running below 1.8% over the past four months. The Fed targets annual inflation at 2%.
“That’s what I’m saying again, wow, inflation is softening faster than I thought, and that’s what made me say, look, I think 50 (basis points) is what we need to do,” Waller said in an interview with CNBC’s Steve Liesman.
The consumer and producer price index showed a 0.2% increase for the month. On a 12-month basis, the CPI ran at a rate of 2.5%.
However, Waller said more recent data has shown a stronger trend, thus giving the Fed room to ease as it focuses on supporting the weak labor market.
A week before the Fed meeting, the market priced in a 25 basis point cut. A basis point equals 0.01%.
“The point is, we have room to move, and that’s what the committee gave us,” he said.
The Fed’s move to cut by half a percentage point, or 50 basis points, resulted in key lending rates falling to a range between 4.75%-5%. Along with the decision, individual officials signaled the possibility of another half-point cut this year, followed by a full percentage point in 2025.
Waller points out there are several possible scenarios, each depending on how the economic data works.
“I’m a big proponent of rate hikes when inflation is moving a lot, faster than expected,” he said. “I will feel the same way on the downside to protect our credibility to maintain the inflation target of 2%. If the data starts to come in soft and continue to come in soft, I will be more willing to be aggressive in cutting rates to get inflation closer to our target.”
The Fed gets another look at inflation data next week when the Commerce Department releases its August report on the personal consumption expenditures price index, the central bank’s preferred measure. Chairman Jerome Powell said on Wednesday that Fed economists expect the measures to show inflation running at 2.2% annually. A year ago, it was at 3.3%.