The Federal Reserve could start cutting interest rates sooner than expected if inflation falls below 2% or if the labor market weakens, according to Federal Reserve Governor Christopher Waller. However, Waller added that the Fed may pause rate cuts if inflation unexpectedly accelerates. "It is possible inflation will turn out to be more persistent, leaving us with no choice but to take policy rates higher than currently anticipated," Waller said in a speech. The Fed has raised interest rates aggressively in recent months in an effort to tame inflation, which is at a 40-year high. The central bank is expected to continue raising rates at its next meeting in September. However, Waller's comments suggest that the Fed is willing to be flexible in its approach to monetary policy. If inflation starts to moderate, the Fed may be willing to pause or even reverse its rate hikes. On the other hand, if inflation remains high or even accelerates, the Fed may be forced to raise rates more aggressively than previously expected.