Federal Reserve Governor Waller said on Monday that future rate cuts will be smaller than the sharp cut in September; ② He noted that the economic slowdown may not be as large as expected.

According to the China Business Network on October 15, Christopher Waller, a member of the Federal Reserve Board, said on Monday that future interest rate cuts will not be as large as the sharp cut in September. He believes that the US economic growth rate may still be higher than expected.

Waller cited recent reports on employment, inflation, gross domestic product and income, noting that "these data suggest that the slowdown may not be as sharp as expected."

“While we do not want to overreact or read too much into these data, I believe the overall data suggest that monetary policy should be more cautious in the pace of rate cuts than it was in September,” Waller said in remarks prepared for a conference at Stanford University.

Recent U.S. economic data has been mixed. The labor market was unexpectedly strong in September after a summer of weakness, the Consumer Price Index (CPI) inflation measure came in slightly above expectations, and GDP also remained strong.

Recently, the U.S. Department of Commerce also revised up the second quarter gross national income (GDI) growth to 3.4%, 2.1 percentage points higher than the previous estimate, which is closer to the GDP growth. The savings rate was also significantly revised up to 5.2%.

“These revisions suggest that the economy is much stronger than previously thought and that there is little sign of a significant slowdown in activity,” Waller said.

Calls for gradual rate cuts over the next year

The Fed took the unusual step of slashing its benchmark interest rate by 50 basis points to a target range of 4.75%-5.00% at its September meeting, something it has done in the past only in times of crisis as the central bank tends to adjust rates in 25 basis point increments.

Fed officials also said that another 50 basis point rate cut could be made in the final two meetings in 2024, and another 100 basis point rate cut in 2025. However, Waller did not commit to a specific path for future rate cuts.

"Whatever happens in the near term, my baseline remains a gradual reduction in the policy rate over the next year," he said.

The market had previously expected the Federal Reserve to continue to cut interest rates by 50 basis points in November, but with the strong performance of the U.S. non-farm data in September and the September CPI exceeding expectations, investors are currently betting that policymakers will cut interest rates by 25 basis points at that time.

According to the CME's FedWatch tool, traders are currently pricing in an 86.5% chance of a 25 basis point rate cut in November, a 13.5% probability of no cut and a zero chance of a 50 basis point cut.

Minneapolis Fed President Neel Kashkari also said on Monday that it might be appropriate to continue to cut interest rates modestly in the coming quarters.