“It’s not about reacting, or backing down or anything like that,” he told CNBC. “I don’t believe we’re behind.”
Waller was responding to arguments that the central bank should not cut rates by half a percentage point — opting instead for a smaller reduction — because that would be a sign of economic weakness.
Citing a speech earlier this year, Waller asserted that the Fed could cut rates even if the economy is doing well.
“And that’s the position we’re in,” he said, adding that inflation is cooling while the labor market remains solid.
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The Fed cut its key lending rate by half a percentage point this week, marking its first cut in more than four years. The move sharply reduced borrowing costs to boost the economy.
Waller told CNBC that policymakers still have plenty of room to cut rates over the next six to 12 months.
The pace of the decline will in turn be determined by incoming data, for example the job market and inflation, he said.
Separately, a paper that Waller co-authored, published Friday, suggested the US economy is not out of the woods yet and could still see unemployment rise.
“The labor market is not quite back to where it was before the pandemic, and inflation remains significantly” above the Fed’s long-term inflation target of two percent, the bank’s senior economists Waller and Andrew Figura wrote.
“As a result, it is possible that a soft landing will not happen,” they added.
This refers to a scenario where inflation simply eases the target with “a markedly smaller increase in unemployment than in previous recessions”.
But despite this warning, Waller and Figura said most forecasters still expect a soft landing with a “modest” increase in the unemployment rate.
“Clearly, they also believe that a soft landing in the labor market is possible,” they added.
da-bys/bjt
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