Federal Reserve Governor Christopher Waller acknow
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Posted On: 01/17/2024 5:22:06 AM
Federal Reserve Governor Christopher Waller acknowledged Tuesday that interest rate cuts are likely this year, but said the central bank can take its time relaxing monetary policy.
The comments, delivered during a speech in Washington, D.C., seemed to counter market anticipation for aggressive easing this year.
“As long as inflation doesn’t rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year,” Waller said in prepared remarks for an audience at the Brookings Institution.
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he added. “In many previous cycles ... the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, ... I see no reason to move as quickly or cut as rapidly as in the past.”
Market pricing Tuesday morning indicated about a 67% chance the FOMC will begin cutting in March, according to the CME Group’s FedWatch measure. In fact, traders had further ramped up expectations for 2024 to seven cuts, but brought it back to six following Waller’s remarks.
Along with rate cuts, Waller said he anticipates the Fed this year can start slowing the pace of “quantitative tightening,” or the reduction of the central bank balance sheet by allowing proceeds from maturing bonds to roll off without reinvesting them. The Fed has been allowing up to $95 billion a month roll off and thus far has cut its holdings by about $1.2 trillion.
“I would say sometime this year will be a reasonable thing to start thinking about it,” he said. However, Waller noted that “tapering” would apply only to Treasurys and not mortgage-backed securities holdings, which he prefers to allow to decrease at the current pace.
The comments, delivered during a speech in Washington, D.C., seemed to counter market anticipation for aggressive easing this year.
“As long as inflation doesn’t rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year,” Waller said in prepared remarks for an audience at the Brookings Institution.
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he added. “In many previous cycles ... the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, ... I see no reason to move as quickly or cut as rapidly as in the past.”
Market pricing Tuesday morning indicated about a 67% chance the FOMC will begin cutting in March, according to the CME Group’s FedWatch measure. In fact, traders had further ramped up expectations for 2024 to seven cuts, but brought it back to six following Waller’s remarks.
Along with rate cuts, Waller said he anticipates the Fed this year can start slowing the pace of “quantitative tightening,” or the reduction of the central bank balance sheet by allowing proceeds from maturing bonds to roll off without reinvesting them. The Fed has been allowing up to $95 billion a month roll off and thus far has cut its holdings by about $1.2 trillion.
“I would say sometime this year will be a reasonable thing to start thinking about it,” he said. However, Waller noted that “tapering” would apply only to Treasurys and not mortgage-backed securities holdings, which he prefers to allow to decrease at the current pace.
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