Fed Reserve Governor Sees 2-3 Rate Cuts In 2025
Federal Reserve Governor Christopher Waller indicated Thursday that the central bank could implement multiple interest rate cuts this year, contingent on inflation easing as expected.
In a CNBC interview, Waller suggested that the first rate cut could occur in the first half of the year, with additional reductions following, provided that economic data on prices and unemployment align with expectations.
“As long as inflation data remains favorable, I could see rate cuts happening sooner than the market anticipates,” Waller told Sara Eisen during a “Squawk on the Street” segment.
When asked how many rate cuts might occur, he responded, “It all depends on the data. If we make significant progress, we could see more cuts,” potentially up to three or four, with each cut being a quarter percentage point. However, he cautioned that if inflation remains persistent, the central bank may limit cuts to two or even just one.
Following Waller’s remarks, traders adjusted their expectations for the pace of rate cuts. Market odds for a May rate cut rose to about 50%, with June emerging as the more likely timeline. There was also an increase in expectations for a second cut by the end of the year, with the probability climbing to around 55%, about 10 percentage points higher than before his comments.
Waller’s outlook for easing is rooted in his expectation that inflation will continue to slow, despite some persistent inflationary pressures. The core consumer price index for December showed a 3.2% increase, excluding food and energy, down from the previous month but still above the Fed’s 2% target.
“I expect inflation to move closer to our target as the year progresses. The year-over-year stickiness we’ve seen in 2024 should start to ease,” Waller said. “I may be a bit more optimistic about inflation’s trajectory than my colleagues, and that optimism is driving my outlook for policy adjustments.”
During the Federal Open Market Committee’s December meeting, members anticipated two rate cuts in 2025, though their post-meeting statements reflected a cautious, wait-and-see approach.
The FOMC’s next meeting is scheduled for January 28-29, with markets assigning a minimal chance of a rate move.
Waller concluded, “We don’t feel any urgency in January. We’ll need to assess the situation further before making any decisions.”