US FOMC Member Waller Speaks

Thank you, Lydia, and thank you for the opportunity to speak to you today. I thought I might use my time with you to address the Federal Open Market Committee's (FOMC) ongoing effort to return inflation to our 2 percent target while keeping the labor market and the economy strong. After significant progress in reducing inflation and evident moderation in the labor market, in September the Committee judged that the time had come to begin easing monetary policy toward a more neutral setting to limit the risk of unduly weakening the labor market as progress continues toward 2 percent inflation. After reducing the policy rate 75 basis points since our September meeting, I believe that monetary policy is still restrictive and putting downward pressure on inflation without creating undesirable weakness in the labor market. I expect rate cuts to continue over the next year until we approach a more neutral setting of the policy rate. But recent data have raised the possibility that progress on inflation may be stalling at a level meaningfully above 2 percent. This risk has raised concerns that the FOMC should consider holding the policy rate constant at our upcoming meeting to collect more information about the future path of inflation and the economy. Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2 percent over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting. But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation. Let me turn to the economic outlook. Real gross domestic product (GDP) grew at a strong annual pace of 2.8 percent in the third quarter of 2024, and indications are that growth in the fourth quarter will be a bit slower. An average of private sectors forecasts predicts 2.2 percent, while based on fairly limited data so far, the Atlanta Fed’s GDPNow model currently predicts 3.2 percent. On the consumer side of the economy, real personal consumption expenditures (PCE) increased 0.1 percent in October after a 0.5 percent rise in September. Given the recent volatility in these numbers, I won't read too much into the monthly swing. The modest increase in October might partially reflect some payback to the stronger growth in September. Overall, household balance sheets continue to be in generally good shape, and this position should help maintain spending going forward. post: Fed’s Waller Says Leaning Towards Rate Cut In December, Absent Data Surprise https://t.co/iyPgiSmydc post: Waller: “At present, I lean toward supporting a cut to the policy rate at our December meeting.” Because of recent inflation stickiness, “one could argue that there is a case for skipping a rate cut at the next meeting.” But … “policy is still restrictive enough that an… post: FED'S WALLER: I AM LESS PLEASED ABOUT UPTICK IN INFLATION, BUT DON'T WANT TO OVERREACT. post: FED'S WALLER/AIER: DON'T KNOW IF INFLATION UPTICK WILL PERSIST AND LABOR DATA 'CLOUDY' SO DATA COULD ARGUE AGAINST A DEC CUT #Waller #FederalReserve

Thank you, Athanasios, and thank you for the opportunity to be part of this very worthy celebration. In support of the theme of this conference, I do have some thoughts on the Shadow Open Market Committee's contributions to the policy debate, in particular its advocacy for policy rules. But before I get to that, I am going to exercise the keynote speaker's freedom to talk about whatever I want. To that end, I want to take a few minutes to offer my views on the economic outlook and its implications for monetary policy. So let me start there, and afterward I will discuss the role that policy rules play in my decision making and in the deliberations of the Federal Open Market Committee (FOMC). In the three weeks or so since the most recent FOMC meeting, data we have received has been uneven, as it sometimes has been over the past year. I continue to judge that the U.S. economy is on a solid footing, with employment near the FOMC's maximum employment objective and inflation in the vicinity of our target, even though the latest inflation data was disappointing. Real gross domestic product (GDP) grew at a 2.2 percent annual rate in the first half of 2024, and I expect it to grow a bit faster in the third quarter. The Blue Chip consensus of private sector forecasters predicts 2.3 percent, while the Atlanta Fed's GDPNow model, based on up-to-the moment data, is predicting real growth of 3.2 percent. Earlier, there were concerns that GDP in the first half of this year was overstating the strength of the economy, since gross domestic income (GDI) was estimated to have grown a mere 1.3 percent in the first half of this year, suggesting a big downward revision to GDP was coming. But revisions received after our most recent FOMC meeting showed the opposite—GDI growth was revised up substantially to 3.2 percent. This change in turn led to an upward revision in the personal saving rate of about 2 percentage points in the second quarter, leaving it at 5.2 percent in June. This revision suggests that household resources for future consumption are actually in good shape, although data and anecdotal evidence suggests lower-income groups are struggling. These revisions suggest that the economy is much stronger than previously thought, with little indication of a major slowdo post: *FED'S WALLER: SHOULD PROCEED WITH MORE CAUTION ON PACE OF CUTS *WALLER: DATA WARRANT MOVING TO NEUTRAL AT `DELIBERATE PACE' *WALLER: 'CONSIDERABLE' ROOM FOR CUTTING ABOVE NEUTRAL RATE *WALLER: HURRICANES, STRIKE COULD REDUCE OCT. PAYROLLS BY 100K post: FED'S WALLER: MY BASELINE CALLS FOR REDUCING POLICY RATE GRADUALLY OVER THE NEXT YEAR. post: FED'S WALLER: THE LATEST INFLATION DATA DISAPPOINTING. post: WALLER: IF, IN A LESS LIKELY CASE, INFLATION FALLS BELOW 2% OR LABOR MARKET DETERIORATES, FED CAN FRONT-LOAD RATE CUTS