Fed Governor Waller sees the potential for multiple interest rate cuts in 2025

Federal Reserve Chairman Christopher Waller said on Thursday that the central bank could cut interest rates several times this year if inflation falls as he expects.

In an interview with CNBC, the politician said he expected the first cuts could take place in the first half of the year, with others to follow as economic data on prices and unemployment cooperate.

“As long as the data is good on inflation or continues to go that way, I certainly see a rate cut coming before perhaps the markets price in,” Waller said during the “Sound on the street” interview with Sarah Eisen.

When asked how much that might entail, he said: “It will all depend on the data. I mean, if we make significant progress, you could do more,” which he said could mean three or four, assuming quarter-percent point gains.

“If the data doesn’t match, then you’re going to go back to two and maybe even one if we just get a lot of sticky inflation,” he said.

Traders increased their bets on a slightly more aggressive pace of rate cuts following Waller’s remarks. Market odds for a May move have risen to around 50%, although June has emerged as the best bet, according to Data from CME Group. Expectations for a second cut by the end of the year rose to about 55%, or about 10 percentage points higher than before his speech.

Underlying Waller’s hopes for an easing is the belief that inflation will ease over the course of the year, despite several months of data showing stability in some key prices. The consumer price index December headlines slowed to 3.2%, excluding food and energy, down 0.1 percentage point from the previous month but still well above the Fed’s 2% target.

“I think inflation will continue to move closer to our target right now. “Every year, the sharpness that we saw in 2024, I think, will start to dissipate,” he said. “So I’m perhaps a bit more bullish on lower inflation than the rest of my peers, and that’s what informs my view of the policy path.”

Members of the Federal Open Market Committee outlined two cuts for 2025 at a December meeting, though comments after the meeting suggested a cautious and patient approach.

The next FOMC meeting will be held on January 28-29, and prices in the markets will be almost unchanged.

“Well, January, we’ll have to see what happens next… We’re really in no rush to do anything,” Waller said.