Waller: Disinflation Progress Uneven but Still on Track, Rates Cuts on Track as Well
February 18, 2025
Federal Reserve Governor Christopher Waller said on Friday that disinflation is progressing unequally but remains on track, and that interest rate reductions are still on the horizon.
In a speech to the Economic Club of New York, Waller noted that disinflation has been “most pronounced” in goods sectors, where supply chain disruptions have eased and demand has moderated. However, he acknowledged that disinflation in services sectors has been “more uneven,” with wage growth and shelter costs remaining elevated.
“Overall, progress on disinflation has been made, but there is still more work to do,” Waller said. “The disinflation process is likely to be bumpy and uneven as we navigate through the year.”
Despite the uneven progress, Waller expressed confidence that the Fed’s monetary tightening campaign is having the desired effect of cooling inflation. He cited recent declines in core inflation measures as evidence of this progress.
“I believe that disinflation is well underway, and that we will continue to make progress towards our 2% inflation target,” Waller said. “As disinflation takes hold, the need for further monetary tightening will diminish.”
As a result of the progress on disinflation, Waller indicated that the Fed is on track to reduce interest rates later this year. However, he stressed that the timing and pace of these reductions will depend on economic data and the continued progress towards the Fed’s inflation goal.
“I do expect rate cuts to be appropriate at some point this year,” Waller said. “However, the timing and pace of these rate cuts will be data-dependent and will depend on our assessment of progress towards our goals.”
Waller’s comments come as markets have been pricing in a more aggressive rate-cutting path for the Fed in 2025. However, Waller’s remarks suggest that the Fed is taking a more cautious approach and will not be in a hurry to lower interest rates.
Investors reacted positively to Waller’s speech, with stocks and bonds rallying on the prospect of future rate cuts. The yield on the 10-year Treasury note fell to its lowest level since October 2022, indicating that investors are betting that the Fed will be able to control inflation without causing a severe economic downturn.
Waller, Disinflation Progress Uneven but Still on Track Rates Cuts on Track as Well
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