Data ‘almost as good as it gets’
At their December meeting, Fed officials indicated three cuts were likely this year. The benchmark fed funds rate is currently in a targeted range between 5.25%-5.5%.
In making the pitch for rate cuts, Waller noted the progress made against inflation has not come at the cost of the labor market. As a governor, Waller is a permanent FOMC voter.
Stocks held in sharply negative territory after the release of Waller’s remarks, while Treasury yields moved higher.
While 12-month inflation is still running well above the Fed’s 2% goal, measures over shorter time frames such as six months are much closer to target. For instance, the core personal consumption expenditures price index, one of the Fed’s preferred measures, is showing annual inflation at 3.2%, the six-month measure is around 1.9%.
At the same time, unemployment has held below 4% and gross domestic product has grown at a rate defying Wall Street expectations for a recession.
“For a macroeconomist, this is almost as good as it gets. But will it last?” Waller said. “Time will tell whether inflation can be sustained on its recent path and allow us to conclude that we have achieved the FOMC’s price-stability goal. Time will tell if this can happen while the labor market still performs above expectations.”
While the Fed has wrestled with the quandary of not tightening enough and allowing inflation to expand and tightening too much that it chokes off growth, Waller said those risks are becoming more balanced.
In fact, he said that as the level of job openings compared with the size of the labor force declines, the Fed is now running more of a risk of doing too much.
“So, from now on, the setting of policy needs to proceed with more caution to avoid over-tightening,” he said.
Waller said he thinks the Fed is “within striking distance” of achieving its 2% inflation goal, “but I will need more information” before declaring victory. One data point he said he will be especially focused on is upcoming revisions to the Labor Department’s consumer price index inflation measure.
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At their December meeting, Fed officials indicated three cuts were likely this year. The benchmark fed funds rate is currently in a targeted range between 5.25%-5.5%.
In making the pitch for rate cuts, Waller noted the progress made against inflation has not come at the cost of the labor market. As a governor, Waller is a permanent FOMC voter.
Stocks held in sharply negative territory after the release of Waller’s remarks, while Treasury yields moved higher.
While 12-month inflation is still running well above the Fed’s 2% goal, measures over shorter time frames such as six months are much closer to target. For instance, the core personal consumption expenditures price index, one of the Fed’s preferred measures, is showing annual inflation at 3.2%, the six-month measure is around 1.9%.
At the same time, unemployment has held below 4% and gross domestic product has grown at a rate defying Wall Street expectations for a recession.
“For a macroeconomist, this is almost as good as it gets. But will it last?” Waller said. “Time will tell whether inflation can be sustained on its recent path and allow us to conclude that we have achieved the FOMC’s price-stability goal. Time will tell if this can happen while the labor market still performs above expectations.”
While the Fed has wrestled with the quandary of not tightening enough and allowing inflation to expand and tightening too much that it chokes off growth, Waller said those risks are becoming more balanced.
In fact, he said that as the level of job openings compared with the size of the labor force declines, the Fed is now running more of a risk of doing too much.
“So, from now on, the setting of policy needs to proceed with more caution to avoid over-tightening,” he said.
Waller said he thinks the Fed is “within striking distance” of achieving its 2% inflation goal, “but I will need more information” before declaring victory. One data point he said he will be especially focused on is upcoming revisions to the Labor Department’s consumer price index inflation measure.
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logo
TV
Worldwide Exchange
WATCH LIVElogo
UP NEXT | Squawk Box 06:00 am ET
Listen
TRENDING NOW
ODINTSOVO, RUSSIA - JANUARY 16: (RUSSIA OUT) Russian President Vladimir Putin attends the Municipal Service Award Ceremony on January 16 2024, in Odintsovo, west of Moscow, Russia. Putin visited an annual award ceremony for municipal workers, heads of municipalities, village elders and employers of territorial departments. (Photo by Contributor/Getty Images)
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Stock futures fall on Wednesday morning
A Chinese flag flies outside a residential compound in Beijing on April 30, 2017.
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