Fed Official Hints That Future Rate Hikes Are Off the Table

Christopher Waller said that the high interest rates may finally have the fight against inflation back on track.

Photo of Federal Reserve Governor Christopher Waller
Photo by Federal Reserve Board of Governors via Public Domain Mark 1.0

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Before you can lower something, you have to stop raising it.

Readers of the tea leaves of Federal Reserve governors’ public statements may have caught a glimpse of a small but possibly significant shift in the central bank’s tone regarding future interest-rate decisions — namely, they might be as high as they’re going to get.

Fed Speak

In a speech on Tuesday to the Peterson Institute in Washington, Federal Reserve governor Christopher Waller offered the usual hedge we’ve seen in just about every Fed official’s comments in the recent past — something to the effect of “inflation looks OK-ish, but we’ll need to see a lot more before we even dream of cutting rates.” Waller even graded the latest April consumer price report, which showed core inflation slowing to an annual rate of 3.6%, its lowest reading since April 2021, as a “C+ — far from failing but not stellar either.”

But as Larry David might put it, when you’ve been carrying a D average, a C+ is “pretty, pretty good.” And Waller fanned the flames of optimism by saying that the high rates the Fed has sustained may finally have the fight against inflation back on track. “Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary.”

That’s about as positive a statement as you’re likely to get from a Fed governor these days, but it’s worth remembering we’re not that far removed from valid fears that not only would we see no rate cuts in 2024 but that rate hikes might be necessary. Life was good when the annual inflation rate dropped to 3.1% last November, but it jumped again in December and has stayed above that 3.1% floor for every month of 2024 (the Fed’s inflation target is 2%).

But true to the Fed mission of not overpromising, Waller was quick to note that the progress wasn’t exactly massive:

  • Waller said April’s inflation report showed a “small” improvement — so small that he needed to “report the monthly numbers to two decimal places to show progress.” He also pointed to the resilient labor market as forcing the Fed to rely mostly on inflation numbers before considering rate cuts.
  • In April, the government reported its 27th consecutive month of unemployment below 4%, though wage growth appears to be slowing. Less relative earnings could help solve inflation, but it may add a few bumps to the “soft landing” scenario — low inflation that doesn’t tip the economy into recession.

Keep Guessing: As for the “good inflation data” Waller and his fellow Fed governors say they need, it’s still an inexact science and Waller is offering only the smallest of clues. “I will keep that to myself for now but let’s say that I look forward to the day when I don’t have to go out two or three decimal places in the monthly inflation data to find the good news.” Here at the Daily Upside, we always knew the future of the US economy might come down to a decimal point.