Benzinga - by Piero Cingari, Benzinga Staff Writer.
Federal Reserve Gov. Christopher J. Waller‘s recent comments at The Brookings Institution have significantly impacted market expectations regarding interest rate cuts.
Waller emphasized a careful approach, focusing on keeping the economy stable and managing inflation, suggesting the Fed won’t rush to cut rates soon.
“With economic activity and labor markets in good shape and inflation coming down gradually to 2 percent, I see no reason to move as quickly or cut as rapidly as in the past,” Waller stated.
- Robust Economic Activity: Waller highlighted the strength of economic activity and labor markets, painting a picture of a resilient economy.
- Skepticism on Rapid Rate Cuts: He expressed doubt about the need for quick rate reductions, emphasizing the good shape of the economy and the gradual decrease in inflation towards the 2% target.
- GDP Growth Deceleration: A noteworthy point was the slowdown in GDP growth in the last quarter of 2023, signaling a shift from the higher growth rates seen earlier in the year. This suggests a strategic cooling down of the economy.
- Encouraging Employment Data: Waller brought positive news with a steady unemployment rate of 3.7% in December and the addition of 216,000 jobs.
- Caution on Employment Growth: However, he warned of a likely slowdown in job growth, in line with more moderate growth expectations.
- Inflation Trending Towards Target: The core personal consumption expenditure (PCE) inflation rate, a key indicator, has been hovering around the Fed’s 2% target for the past six months.
- Call for Sustained Progress: Waller called for continued vigilance in inflation management, maintaining a tone of cautious optimism about reaching long-term goals.
- Rate Cut Possibility in 2024: Waller opened the door to a potential rate cut in 2024, contingent on upcoming data.
- Need for Careful Calibration: Any future policy changes, he emphasized, should be well-thought-out and gradual. “When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” Waller stated.
- Reduced Rate Cut Expectations: The likelihood of a March rate cut has dropped to 63%, down from 70%.
- Rise in Treasury Yields: Notably, the 10-year yield climbed to 4.07%, and the 2-year yield reached 4.22%. As yields rose, bonds tumbled with the iShares 20+ Year Treasury Bond ETF (NYSE:TLT) falling by 1.9%.
- Stocks Faced Downturns: The SPDR S&P 500 ETF Trust (NYSE:SPY) dipped by 0.5%, and the iShares Russell 2000 ETF (NYSE:IWM) saw a 1.4% drop.
Photo: Shutterstock, Federal Reserve (public domain)
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