Federal Reserve Governor Christopher Waller Sees Multiple Rate Cuts in 2025, Hinges on Inflation
In an interview with CNBC, Federal Reserve Governor Christopher Waller stated that the central bank may lower interest rates multiple times in 2025 if inflation eases as expected. Waller believes that the first rate cut could occur in the first half of the year, with further cuts following if economic data on prices and unemployment remains favorable.
Waller’s expectations are based on his forecast for a decline in inflation, which he thinks will continue to move towards the Fed’s 2% target. He mentioned that the stickiness in some key prices in recent months will start to dissipate, leading to a more optimistic outlook for inflation and policy.
If the data cooperates, Waller sees the possibility of three to four rate cuts, with quarter-point increments. However, if inflation does not cooperate, the rate cuts could be more limited, with a possibility of just one cut.
Markets responded to Waller’s remarks, with traders increasing their bets on a slightly more aggressive pace of rate cuts. Market-implied odds for a May rate cut rose to about 50%, while expectations for a second reduction by the end of the year climbed to about 55%.
The next Federal Open Market Committee meeting is scheduled for January 28-29, with markets currently pricing in almost no chance of a rate cut. Waller’s commentary suggests that the Fed is in no rush to take action, and will wait to see the direction of economic data before making a decision.
