Investing.com - Inflation in the US is expected to cool toward the Federal Reserve's 2% target level and give the central bank room to further reduce interest rates, according to Fed Governor Christopher Waller.
In a speech on Wednesday, Waller noted that while the easing in price gains appears to have "stalled" in the final months of 2024, he believes that it will continue to make progress toward 2% over the medium term.
It will thus be "appropriate" for Fed officials, which previously slashed rates by a quarter of a percentage point in December but have flagged caution over future drawdowns, to roll out more cuts, Waller argued.
"[A]s we saw a year ago when inflation briefly increased, progress has been uneven, but disinflation is more apparent if one smooths through the recent upticks," Waller said. He added that higher inflation readings from early 2024 wil lbegin to drop out of the monthly numbers in January, which should result in a "significant step-down" in the 12-month figures "through March."
Later on Wednesday, minutes from the rate-setting Federal Open Market Committee's December gathering could provide more clues into how policymakers will approach further decreases, particularly as the incoming Trump administration's sweeping tariff plans clouds the broader economic outlook.
Indeed, uncertainty around Trump's proposals for trade and taxes has led some officials to consider future rate cuts as if they were "driving on a foggy night or walking into a dark room full of furniture", Fed Chair Jerome Powell said in December.
Following last month's meeting, projections showed that Fed officials are now projecting only 50 basis points in rate cuts this year. In September, estimates were for a full percentage point decline.
"The Waller speech is actually dovish versus the present narrative, as he spends a lot of time [...] expressing confidence in why the disinflationary process will continue," analysts at Vital Knowledge said in a note to clients.