Influential Fed Governor Expects More Interest Rate Cuts: 'Further Reductions Will Be Appropriate'

An influential member of the Federal Reserve's board of governors thinks that inflation remains headed in the right direction and interest rate cuts should continue in 2025.

Christopher Waller made that point during a speech in France on Wednesday.

He said that the U.S. economy is "on a solid footing" with real gross domestic product (GDP) growth above 2 percent for eight of the last nine quarters. He says it is expected to show grow above 2 percent in the fourth quarter of 2024 when those figures are released.

But he says the labor market has softened.

Waller said it appears that higher interest rates have helped control inflation even though progress appears to have stalled in the final months of 2024.

Inflation was at 2.8 percent for the 12 months ending in November. That's only down slightly from 3.2 percent a year earlier.

"This minimal further progress has led to calls to slow or stop reducing the policy rate," Waller said. "However, I believe that inflation will continue to make progress toward our 2 percent goal over the medium term and that further reductions will be appropriate."

He says despite short-term fluctuations, a longer-term look at price changes shows a continuing trend of reduced price increases.

Waller also noted the reading for November came in much lower than expected and said inflation in 2024 was largely been driven by increases in housing services and nonmarket services, which are estimated rather than directly observed.

He noted that higher inflation readings from early in 2024 will begin to drop out of inflation numbers in January.

"This should result in a significant step-down in the 12-month inflation numbers through March," Waller said.

He did warn of potential headwinds including global conflicts and a possible tariff war.

But Waller said, "Tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy."