Fed's Waller Signals 'Moderate Pace' for Rate Cuts, Cooling Market Bets
A key hawk on the central bank's board now projects a clear path to easing as inflation cools, but cautions there is 'no rush' for aggressive action.
A senior Federal Reserve official, once considered one of its most hawkish members, has outlined a clearer path toward interest rate cuts but cautioned markets against expecting rapid, aggressive easing. Federal Reserve Governor Christopher Waller stated that while he anticipates inflation will continue to fall over the next few months, the central bank is in 'no rush to cut interest rates.'
Speaking on Tuesday, Waller suggested the Fed could proceed with rate reductions at a 'moderate pace,' a signal that has tempered investor bets on a more forceful shift in monetary policy. The comments are particularly noteworthy coming from Waller, who has historically advocated for a firm stance against inflation. His evolving perspective underscores a growing consensus within the Fed that the policy focus is shifting from hiking rates to debating the timing and tempo of future cuts.
'My outlook for inflation remains the same,' Waller said, expressing confidence that price pressures would decline toward the Fed's 2% target. '[The data] will tell us how to proceed.' This data-dependent stance was highlighted in the market's reaction, which was more sober than euphoric. Following the remarks, the US Dollar Index saw a modest increase of 0.3%, as traders scaled back more aggressive wagers on near-term easing, according to reporting from FXStreet.
The commentary follows a period where Waller has been a leading voice on the Fed's thinking. He previously stated he believed inflation would start to fall in the next three to four months, which would open the door for policy adjustments. This view helped fuel market optimism that a pivot was imminent. The Fed already delivered a quarter-point rate cut at its December meeting, bringing the benchmark federal funds rate to a range of 3.50% to 3.75%, as announced in its official statement.
Waller's latest comments serve to manage expectations about what comes next. By emphasizing a 'moderate pace' and no 'dramatic action,' he is guiding investors toward a more measured easing cycle, contingent on continued positive news from inflation and labor market data. His remarks suggest that while the peak of interest rates has likely been reached, the path down will be a carefully managed descent rather than a rapid drop.
He has pointed to a softening labor market as a key reason for his shift in perspective, describing job growth as 'not good.' Yet, his concurrent caution against a 'rush' to cut suggests the Fed wants to see more conclusive evidence that inflation is sustainably beaten before committing to a significant easing cycle. This balancing act—acknowledging progress while retaining optionality—is likely to define central bank communication in the coming months as investors watch every data point for clues on the timing of the next move.