Fed is within ‘striking distance’ of inflation goal, top official says

Christopher Waller, member of the Federal Reserve Board of Governors, said he was “becoming more confident that we are within striking distance” of the central bank’s annual inflation goal of 2 percent.

In remarks at a virtual Brookings Institution event, Waller said the Fed is on track to cut interest rates later this year as long as inflation doesn’t pick up steam.

Inflation topped 9 percent in June 2022, well above the Fed’s target level, but has fallen steadily since and clocked in at an annual rate of 3.4 percent in December, according to the latest Labor Department data.

In an effort to get inflation under control, the Fed hiked interest rates from near zero in March 2022 to a range of 5.25 percent to 5.5 percent in July 2023, and it has held rates steady at subsequent meetings as inflation showed signs of easing.

Waller is a voting member of the Federal Open Market Committee (FOMC), the central bank panel tasked with setting monetary policy.

“As long as inflation doesn’t rebound and stay elevated, I believe the FOMC will be able to lower the target range for the federal funds rate this year,” Waller said.

Fed Chair Jerome Powell signaled the central bank was nearing the end of its rate hike crusade at the December meeting of the FOMC, sending markets soaring after nearly two years of ever-increasing borrowing costs.

Potential rate cuts are on a collision course with the 2024 presidential election, where the economy is poised to play a central role in a likely rematch between President Biden and former President Trump.

The Fed is politically independent, and Powell made clear that any decisions on rate cuts will not be made based on politics, but the central bank has already taken heat from some progressives for not cutting rates.

The Fed also risks invoking Trump’s wrath if it chooses to cut interest rates, which could stimulate the economy ahead of the election. Trump feueded with Powell throughout his presidency over the Fed chief’s refusal to align interest rates with the president’s political goals.

While markets hope for rate cuts as early as the Fed’s March meeting, economists expect that may be overly optimistic. 

Waller said the Fed was approaching monetary policy with “more caution” as it attempts to bring the economy in for a rare “soft landing.”

“I will be watching for sustained progress on inflation and cooling in the labor market that doesn’t harm the economy,” Waller said.