Federal Reserve Governor Waller: If inflation data continues to improve, interest rates may be cut in the first half of 2025

According to the Zhitong Finance APP, Federal Reserve Governor Christopher Waller stated that if future inflation data continues to perform well, the U.S. central bank may lower interest rates again in the first half of 2025. Waller mentioned in a media interview on Thursday, "The inflation data released yesterday was very good." He noted that the latest data shows a easing of core price pressures last month. "If we continue to receive such data, it is reasonable to speculate that there may be a rate cut in the first half of 2025," he said, adding that he does not completely rule out the possibility of a rate cut in March. Waller further pointed out that if future inflation data aligns with the positive report in December, the Federal Reserve may cut rates earlier and more frequently this year than investors currently expect. He stated, "I am optimistic about the sustainability of this disinflation trend and believe we may be approaching the 2% target faster than some expect." The Federal Reserve's long-term goal is to keep the inflation rate at 2%. Following Waller's comments, the yield on two-year U.S. Treasury bonds fell to 4.25%, hitting a new low for the day. At the same time, traders increased their bets on the Federal Reserve adopting easing policies in the upcoming meetings. In the eyes of investors, whether the Federal Reserve will cut rates at the May meeting remains uncertain, but the market has viewed the July meeting in 2025 as a potential time for the first comprehensive rate cut. For the entire year of 2025, the market currently expects the Federal Reserve may cut rates by 40 basis points, higher than the previous expectation of 34 basis points. Waller noted that the median forecast among Federal Reserve officials for the so-called "neutral policy rate" (the rate that neither stimulates nor suppresses economic growth) indicates that based on future data, there may be three to four rate cuts this year. He emphasized, "It all depends on the data. If the data does not cooperate, the number of rate cuts may be reduced to two, or even just one, especially if inflation remains stubborn." Although the latest inflation data released this week has been welcomed by several Federal Reserve officials, many decision-makers still expect that the pace of rate cuts in 2025 will be slower than at the end of 2024. The employment data at the end of 2024 shows that there has not been a significant slowdown in the labor market, employer hiring activity remains active, and the unemployment rate has decreased. Waller believes that the current job market is robust but not overheating, reflecting the restraining effect of the Federal Reserve's restrictive policies on the economy. He stated, "From the perspectives of hiring rates, turnover rates, and wage growth, there are no signs of overheating or acceleration in the current job market, which is why I believe the economic conditions are still within limits."