Federal Reserve Governor Christopher Waller is prepared to continue cutting interest rates in 2025, but the pace of additional cuts will depend on how much progress the central bank makes on cooling inflation while maintaining a strong labor market.
“As always, the extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate,” Waller said Jan. 8 during a speech at the Organization for Economic Cooperation and Development in Paris.
The Federal Open Market Committee has cut rates at its past three meetings, starting with a half-point cut in September and two quarter-point cuts in November and December.
At its December meeting, the FOMC lowered the federal funds rate to a range of 4.25% to 4.5%. Committee members also adjusted their median projection rate for the end of 2025 to 3.9%, up from a projected 3.4% in September.
Market participants predict there is a 95% chance the committee will hold rates steady at its next two-day meeting that ends Jan. 29, according to the CME FedWatch Tool that tracks 30-day Fed funds futures prices.
The consumer price index rose an annualized 2.7% in November from a year earlier, above the 2.6% figure recorded in October. Separately, core personal consumption expenditures, or core PCE, the Fed’s preferred inflation gauge, rose 2.8% year-over-year in November, the same year-over-year increase as October.
Looking ahead, Waller said geopolitical conflict could boost prices, while tariff proposals could put upward pressure on inflation in the coming year.
During the campaign, President-elect Donald Trump called for establishing a universal baseline tariff on all U.S. imports of 10% to 20% and a 60% tariff on all U.S. imports from China.
Waller noted that projections on the economic impact of additional tariffs vary widely.
“If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy,” he said. “Of course, we need to see what policies are enacted before we can seriously consider their effects.”