(Bloomberg) -- Three Federal Reserve officials on Monday made clear they expect the US central bank to continue cutting interest rates over the next year, but stopped short of saying they are committed to making the next reduction later this month.
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Fed Governor Christopher Waller, addressing a conference in Washington, said he’s inclined to vote to lower borrowing costs when Fed officials gather Dec. 17-18, but added that data due before then could make the case for holding rates steady.
“At present I lean toward supporting a cut to the policy rate at our December meeting,” Waller said in prepared remarks at a conference on the Fed’s framework review in Washington sponsored by the American Institute for Economic Research. “But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”
Waller said recent data had raised concerns that inflation may be stalling above the 2% target but added “there is no indication” that prices in key service categories should remain at their current levels or increase.
“I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard,” Waller said in the text of his remarks. “Another factor that supports a further rate cut is that the labor market appears to finally be in balance, and we should aim to keep it that way.”
New York Fed President John Williams and his counterpart from Atlanta, Raphael Bostic, shaded their remarks only slightly differently. Each said the economy continued to look strong and inflation would likely continue to move down toward the Fed’s target — and that merited more cuts. But they stopped short of saying whether they yet favored a rate cut in December.
“The path for policy will depend on the data,” Williams said during a speech in New York. “If we’ve learned anything over the past five years, it’s that the outlook remains highly uncertain.”
Bostic published his latest views Monday in an essay. In a separate call with reporters, he said he’ll wait for more data before making up his mind about the next meeting.
“I’m keeping my options open,” he said.
Policymakers have lowered rates by three quarters of a percentage point since September, starting with a larger-than-usual half-point cut. Several officials have signaled support for a more gradual pace of rate reductions in coming months.
Waller also commented briefly on the Fed’s next framework review, which kicks off in January. He called the current strategy of flexible average inflation targeting — which can allow inflation to run slightly above the Fed’s 2% target to make up for periods when price pressures run too low — backward looking.
We designed the framework thinking the low inflation problem was going to continue, Waller said. “And then within a year, the whole thing kind of blew up” as inflation rose.
“A monetary policy strategy should be robust to whatever the economic conditions are,” he said. He also criticized flexible average inflation targeting as not being intuitive or clear to the public.
Fed officials started cutting rates in September after pushing them to a peak of 5.25% to 5.5%, which helped cool inflation pressures off a peak of 7.2% in mid-2022.
But investors in December futures contracts are pricing in some chance of a pause in the cutting cycle after recent data showed sticky service-sector inflation. The personal consumption expenditures price index, minus food and energy, rose 2.8% for the 12-month period ending in October.
While officials call their policy “restrictive,” US gross domestic product expanded at an annualized rate of 2.8% in the most recent quarter. Personal spending has remained strong along with equipment spending by businesses.
Chair Jerome Powell has been attentive to the risk of labor market weakening, but getting a clean read on the data has been challenging because of strikes and storms. The Bureau of Labor Statistics will release its payrolls report for November on Friday. The next Federal Open Market Committee meeting will be held Dec. 17-18 in Washington.
(Updates with Waller, Bostic comments from sixth paragraph.)
