Fed's Waller calls rate-cut talk 'crazy'

Federal Reserve Governor Christopher Waller said on May 22 that talk of cutting U.S. interest rates now was "crazy," a sharp shift from an official who had recently argued for lower borrowing costs. In remarks prepared for a lecture in Frankfurt, Waller said the Fed should strip its policy statement of an "easing bias" that still points markets toward future rate cuts. He said he was not calling for an immediate rate increase, but he added that policymakers should not rule one out if inflation stays firm. His comments landed less than a month before the Fed's next policy meeting on June 16-17. ### Why did Waller say rate-cut talk is "crazy" now? Christopher Waller said on May 22 that recent inflation developments had changed the policy backdrop enough that discussion of cuts no longer fit the data. Reuters reported that Waller, who until recently had supported lower rates, said the Fed should be prepared to remove language that leans toward easing. The May 22 speech posted by the Federal Reserve was titled "Policy Risks Have Changed." In that speech, Waller argued that policymakers should hold rates steady until they have more confidence that inflation pressures are easing, according to the text released by the Board. ### What is the "easing bias" he wants removed? The Federal Reserve's April 29 policy statement kept the target range unchanged but retained language referring to possible "additional adjustments" to policy. (money.usnews.com) Reuters said Waller wants that wording removed because it keeps the statement tilted toward cuts rather than a neutral stance. (federalreserve.gov) The April 29 vote showed that debate was already underway inside the Fed. The Board's statement said Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan supported holding rates steady but opposed keeping an easing bias in the statement, while Stephen Miran dissented in favor of a quarter-point cut. (federalreserve.gov) ### Is Waller calling for a rate hike right away? Waller said he was not advocating a rate increase at this meeting, according to Reuters. He said the point was to stop signaling that the next move was more likely to be a cut, and to leave policymakers free to respond if inflation does not cool. (federalreserve.gov) The Wall Street Journal and other outlets described his remarks as opening the door to a possible hike later if price pressures persist. That would mark a harder line from an official who had been seen earlier this year as one of the more dovish voices on the committee. (money.usnews.com) ### How unusual is this shift inside the Fed? Reuters described Waller as an influential policymaker who had until recently advocated lower rates. His move toward a more hawkish position matters because it suggests the internal argument is no longer simply about when to cut, but also about whether the Fed should stop guiding markets toward easing at all. (wsj.com) Beth Hammack made a similar point after the April meeting. In a May 1 statement, Hammack said she dissented because she did not think it was appropriate to include an easing bias around the future path of monetary policy. ### What comes next for markets and the Fed? The Federal Reserve's official calendar lists the next Federal Open Market Committee meeting for June 16-17. (money.usnews.com) That meeting will show whether Chair Kevin Warsh and other policymakers keep the current statement language or move toward the neutral wording Waller called for in Frankfurt. The April 29 statement showed Christopher Waller voting with the majority to hold rates at 3.50% to 3.75%, while four officials dissented for different reasons. (clevelandfed.org) The June meeting will be the next scheduled chance for the committee to rewrite that guidance. (federalreserve.gov 1) (federalreserve.gov 2)