Federal Reserve Governor Christopher Waller said Friday he supports cutting interest rates by half a percentage point at this week’s meeting because inflation is falling much faster than he had expected.
Citing recent data on consumer and producer prices, Waller told CNBC that the data showed core inflation excluding food and energy, the Fed’s preferred measure, has been running at a slower pace of 1.8% over the past four months. The Fed targets annual inflation of 2%.
“That’s why I said inflation is easing much faster than I thought, and why I said 50 (basis points) was the right call,” Waller told CNBC’s Steve Riesman.
The consumer price index and producer price index both rose 0.2% this month. On a 12-month basis, the CPI advanced at a rate of 2.5%.
But Waller said recent data showed the downtrend was stronger, leaving room for the Fed to ease further as it focuses on supporting the weak labor market.
A week before the Federal Reserve meeting, the market was overwhelmingly expecting a 25 basis point cut. One basis point is equal to 0.01%.
“The point is, we have room to maneuver, and that’s what the committee is signaling,” he said.
The Fed’s decision to cut rates by half a percentage point, or 50 basis points, brought the key borrowing rate down to a range of 4.75% to 5%. With the decision, individual officials signaled that another half-point cut was likely this year, with a full percentage point cut in 2025.
Federal Reserve Chair Michelle Bowman was the only member of the Federal Open Market Committee to vote against the cut, preferring instead a smaller 0.25% cut. She issued a statement explaining her opposition on Friday, the first time a governor has voted “no” since 2005.
“While it is important to recognize that meaningful progress has been made in lowering inflation, with core inflation remaining at or above 2.5 percent, we believe that the Committee’s large-scale policy actions run the risk of being interpreted as a premature declaration of victory for its price stability mission,” Bowman said.
Waller said there are several scenarios that could play out for future interest rate trends, depending on how economic data plays out.
“I have been a big supporter of a big rate hike when inflation is moving much, much faster than any of us expected,” he said. “I would be the same way in a downtrend to protect our credibility to maintain our 2 percent inflation target. If the data start out weak and continue to be weak, I would be much more willing to cut rates to get inflation closer to our target.”
The Fed could look again at inflation data next week when the Commerce Department releases its August report on the central bank’s preferred measure, the personal consumption expenditures price index. Fed economists expect the measure to show inflation running at an annual pace of 2.2%, compared with 3.3% a year ago, Chair Jerome Powell said Wednesday.
