Federal Reserve Governor Christopher Waller recently acknowledged that interest rate cuts are likely this year, but the central bank can take its time relaxing monetary policy.
The comments seemed to counter market anticipation for aggressive easing this year. When is the right time to begin lowering rates and how many times are the crucial points, which are the overriding concerns for the markets.
He said the Fed should be lowered methodically and carefully based on the notion that inflation would not rebound and stay elevated. In fact, in many previous cycles, the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, there is no reason for the Fed to move as quickly or cut as rapidly as in the past.
In fact, there is some cautious narrative from the Fed Chairman Powell. The latest readings show that inflation progress could stall, which raised concerns among investors. Some economists argue that the reason they still remain cautious is the substantial amount of fiscal spending, including Inflation Reaction Act, Infrastructure Act, while monetary policy is very restrictive, the fiscal policy is very stimulative, they will be on guard for the issue.
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