(Bloomberg) -- Federal Reserve Governor Christopher Waller said the economy is getting closer to a point where the central bank can reduce borrowing costs but indicated he’d like to see a “bit more evidence” inflation is on a sustained downward path.
“Current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view,” Waller said in prepared remarks Wednesday at the Kansas City Fed. “While I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted.”
Waller adds to a growing chorus of officials — including Chair Jerome Powell and New York Fed President John Williams — who have signaled the central bank is moving closer to cutting rates but is not ready to do so quite yet.
Policymakers will meet next on July 30-31, but investors are betting they won’t begin rate reductions until their September gathering. Waller, like most of his colleagues, didn’t offer guidance on the exact timing of such a move.
Instead, he walked through how different scenarios could alter the path of policy.
The most likely, he said, is that inflation comes in “uneven” — not as good as recent reports but still consistent with overall progress toward bringing inflation down to the 2% target. A rate cut in the near future is more uncertain in that scenario, he said.
Another potential path, however, is that inflation data continue to be “very favorable.” In that case, Waller said, “I could envision a rate cut in the not-too-distant future.”
After a first-quarter pickup in price pressures, recent data have shown slowing inflation. The jobs market is still showing steady gains, but unemployment has gradually ticked higher.
‘Sweet Spot’
Waller said the labor market is in a “sweet spot” where job growth is not excessive and wage increases, in his view, are nearly consistent with stable prices. He noted that layoff rates have been steady around 1%, and the unemployment rate, while higher, remains historically low.
“To me, this is all evidence of labor supply and demand in balance,” he said.
Even so, the Fed governor added that there is more “upside risk to unemployment than we have seen for a long time” and he said he will be paying “close attention” to the employment side of the central bank’s mandate.
Fed officials have emphasized the importance of striking the balance of taming inflation without causing undue harm to the economy. They’re watching labor market data carefully for signs of stress and have indicated a desire to not cool the economy too much.
Still, Waller noted whether the central bank adjusts rates at the end of the third quarter or the end of the year would likely make little difference for the broader economy.
“From a macro perspective, whether you go in September or November or December with a rate cut really doesn’t matter unless there’s some big shock that hits the economy in that timespan,” he said in a moderated discussion following his prepared remarks.
Other Officials
Waller’s comments follow remarks by the New York Fed chief Williams in a Wall Street Journal interview published Wednesday. Williams said inflation data over recent months has been encouraging, but he wants to see more evidence in the coming months to gain the confidence needed to lower borrowing costs.
“We’re actually going to learn a lot between July and September,” Williams said.
Richmond Fed President Thomas Barkin told reporters Wednesday that he’s also been encouraged by the broadening in disinflation, adding he’d like to see that continue.
--With assistance from Christopher Condon.
(Adds additional comment from Waller, Thomas Barkin.)
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