In a recent address, Federal Reserve Board Governor Christopher Waller provided insights into the current state of the economy, emphasizing the Federal Reserve’s close monitoring of inflation trends. Waller described the progress of inflation as akin to a “roller coaster,” signaling fluctuations that could impact future monetary policy.
Waller highlighted that while job growth is anticipated to slow, the unemployment rate is expected to rise gradually, remaining at historically low levels. He characterized the labor market as “quite healthy,” noting that the balance between supply and demand for labor has been achieved.
Despite some suppression in consumer demand for commodities, Waller noted a growing eagerness among consumers to make purchases as interest rates decline. He assured that households are in a strong position for future consumption, stating, “Households’ future consumption resources are in good shape.”
Looking ahead, Waller expressed optimism about the economic foundation, suggesting that GDP growth may exceed expectations in the latter half of 2024. However, he acknowledged that the latest inflation data has been “disappointing.”
Waller elaborated on the Fed’s response to potential economic shifts, indicating that if inflation falls below the target of 2%—though he deemed this unlikely—or if the labor market deteriorates, the Fed could consider cutting interest rates sooner. Conversely, unexpected inflation increases could lead to a pause in rate cuts.
He reiterated the importance of a cautious approach to interest rate adjustments, noting that the current policy rate is at a restrictive level. “My baseline expectation is to gradually lower the policy interest rate over the next year,” Waller stated, while also cautioning that recent events, such as hurricanes and strikes at Boeing, might reduce job growth by approximately 100,000 in October.
Waller concluded by emphasizing the need for a steady and measured approach to policy adjustments, suggesting that the Fed should adopt a more cautious stance compared to its September meeting.
