The Federal Reserve’s prospects for a December rate cut are uncertain as key economic indicators present mixed signals. Christopher Waller, a prominent member of the Fed’s Board of Governors, expressed caution about the possibility due to persistent inflation concerns.
Christopher Waller, speaking at George Washington University, noted his inclination toward a rate cut in December. However, he stressed that his position could change if upcoming data indicate ongoing inflationary pressures. “At present, I lean toward supporting a cut to the policy rate at our December meeting,” Waller stated. However, he highlighted that any unexpected data showing sustained inflation could lead to maintaining the current rate.
The economic landscape has shown signs of strength, with consumer spending and overall economic growth proving robust in the third quarter. Nevertheless, inflation has also been on the rise; October saw a slight uptick in core inflation, reaching 2.8% from 2.7% in September. This uptick has complicated the Fed’s roadmap, as it continues to pursue its goal of controlling inflation to a target rate of 2%.
In 2022, inflation peaked, prompting the Fed to reduce its key rate incrementally—by half a point in September followed by a quarter-point in November. Despite these efforts, inflation remains stubbornly above target, prompting further scrutiny of the Fed’s decision-making.
Waller’s remarks provide insight into the delicate balancing act the Fed faces. If November’s data align with previous expectations of diminishing inflation and stable economic growth, it may bolster the case for a rate cut. “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,” Waller mentioned.
Waller assured that even with a potential quarter-point rate cut, the current high benchmark rate would still restrict economic expansion, minimizing risks of reigniting inflation. “Cutting again will only mean that we aren’t pressing on the brake pedal quite as hard,” he elaborated.
The Fed faces considerable pressure to ensure economic stability while curbing inflation, a challenge Waller likened to an MMA fighter’s struggle with inflation. “I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out, yet it keeps slipping out of my grasp,” he humorously admitted, promising that “inflation isn’t getting out of the octagon.”
Raphael Bostic, president of the Fed’s Atlanta branch, echoed this sentiment by stating he was “keeping my options open” regarding a potential rate cut, underscoring the lack of a definitive decision among Fed officials.
The Federal Reserve’s decision on a possible rate cut in December remains undecided as officials await crucial economic data. The mixed signals in consumer spending and inflation indicate that flexibility and vigilance are key as they navigate this uncertain economic environment.
Source: FloridaRealtors
