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A top Federal Reserve official has said “disappointing” inflation data means the US central bank should “push back” the timing of cutting interest rates from their current 23-year high.
Christopher Waller, a Fed governor and one of the most influential US rate-setters, said in a speech on Wednesday that the recent rise in month-on-month measures of prices reinforced his view that there was “no rush” to lower the central bank’s 5.25 per cent to 5.5 per cent target range.
The Fed raised interest rates aggressively during 2022 and 2023 in response to the worst wave of price pressures for a generation, but is now looking to cut them after a sharp fall in inflation over the second half of last year.
However, the US economy has remained strong and there are signs that inflation in the dominant services sector is proving stickier than expected, which has meant officials want to take their time before declaring victory.
While Waller acknowledged that the central bank had “made a lot of headway in reducing inflation in the past year or so”, readings over the past two months had been “disappointing”.
“Shorter-term inflation measures are now telling me that progress has slowed and may have stalled,” he said.
It was “appropriate to reduce the overall number of rate cuts or push them further into the future” in response to the latest inflation figures, he said. In February the headline consumer price index and core CPI, which strips out more volatile food and energy costs, rose 0.4 per cent from the prior month.
Those reading were “obviously not progress toward our inflation goal”, which is 2 per cent inflation a year, he added.
Waller did not detail whether he was referring to the overall number of cuts for 2024, or for the Fed’s entire forecast horizon, which covers from now until 2026.
He echoed his Fed colleagues in saying that the “remarkable” strength of the US economy meant they could afford to wait.
On the timing of loosening, he said “in the absence of an unexpected and material deterioration in the economy”, he would need to see “at least a couple months of better inflation data” before he had enough confidence that inflation could sustainably hit the 2 per cent goal.
A slim minority of nine Federal Open Market Committee officials favour making three cuts this year, according to projections issued last week. Their bets are broadly in line with those of market participants.
Waller noted that the number of policymakers backing two or fewer cuts this year had also risen since the previous round of projections for rates were issued in December.
“We’re not overreacting, but we are reacting,” he said in response to a question following the speech. “We take [the recent news on inflation] very seriously.”