WASHINGTON, December 21, 2023 – Federal Reserve Board Governor Christopher Waller indicated the central bank may hold interest rates steady for the next few months, a shift in tone that sent ripples through markets Thursday. This suggests a potential pivot from the aggressive rate-hiking campaign aimed at taming inflation.
A Pause in the Punchbowl? What the Fed’s Waller Said
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Waller’s comments suggest the Federal Reserve is cautiously optimistic about progress on inflation, potentially leading to a prolonged period of stable interest rates.
- Governor Waller stated that if economic data continues to show cooling inflation, no further rate increases may be needed.
- He emphasized the importance of monitoring incoming data before making further policy decisions.
- Waller acknowledged the risks of both overtightening and undertightening monetary policy.
- The comments contributed to a rally in both stocks and bonds.
Waller, speaking at the American Enterprise Institute, stated that the recent data suggests inflation is “moving in the right direction,” and that the Fed may be able to hold rates steady for a period of time. What does this mean for your wallet? A pause in rate hikes could translate to more stable borrowing costs for mortgages, auto loans, and credit cards. He cautioned, however, that the Fed remains data-dependent and could still raise rates if inflation reaccelerates.
Data Dependency and the Path Forward
The governor’s remarks come after recent economic reports showed a moderation in inflation, with the Consumer Price Index (CPI) rising less than expected in November. Waller noted that the labor market is also showing signs of cooling, with job growth slowing and unemployment remaining low. He added that the Fed needs to be careful not to overtighten monetary policy, which could lead to a recession.
Waller also acknowledged the risk of undertightening, which could allow inflation to become entrenched. He emphasized that the Fed will continue to monitor incoming data closely and will be prepared to act if necessary. “We’re in a good position right now,” Waller said. “We don’t have to be in a hurry to do things.”
Market Reaction and What to Expect
Financial markets reacted positively to Waller’s comments, with stocks and bonds rallying. The S&P 500 closed higher, and the yield on the 10-year Treasury note fell. Investors are now pricing in a higher probability that the Fed will hold rates steady at its next meeting in January. However, analysts caution that it is still too early to declare victory over inflation.
The Federal Reserve’s next policy meeting is scheduled for January 30-31, 2024. Investors will be closely watching for any further signals about the Fed’s intentions. The central bank will also release its updated economic projections at that meeting, which will provide further insight into its outlook for inflation and growth.
