Fed’s Waller says ‘leaning toward’ continuing return of policy to more neutral

Fed Governor Christopher Waller, in remarks prepared to be presented at the American Institute for Economic Research Monetary Conference, stated, according to a copy of the speech released by the Federal Reserve: “I thought I might use my time with you to address the Federal Open Market Committee’s ongoing effort to return inflation to our 2 percent target while keeping the labor market and the economy strong. After significant progress in reducing inflation and evident moderation in the labor market, in September the Committee judged that the time had come to begin easing monetary policy toward a more neutral setting to limit the risk of unduly weakening the labor market as progress continues toward 2 percent inflation. After reducing the policy rate 75 basis points since our September meeting, I believe that monetary policy is still restrictive and putting downward pressure on inflation without creating undesirable weakness in the labor market. I expect rate cuts to continue over the next year until we approach a more neutral setting of the policy rate. But recent data have raised the possibility that progress on inflation may be stalling at a level meaningfully above 2 percent. This risk has raised concerns that the FOMC should consider holding the policy rate constant at our upcoming meeting to collect more information about the future path of inflation and the economy. Based on the economic data (ECON) in hand today and forecasts that show that inflation will continue on its downward path to 2 percent over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting. But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation… All of that information will help me decide whether to cut or skip. As of today, I am leaning toward continuing the work we have started in returning monetary policy to a more neutral setting. Policy is still restrictive enough that an additional cut at our next meeting will not dramatically change the stance of monetary policy and allow ample scope to later slow the pace of rate cuts, if needed, to maintain progress toward our inflation target. That said, if the data we receive between today and the next meeting surprise in a way that suggests our forecasts of slowing inflation and a moderating but still-solid economy are wrong, then I will be supportive of holding the policy rate constant. I will be watching the incoming data closely over the next couple weeks to help me make my decision as to what path to take.”