Federal Reserve Governor Christopher Waller recently stated in an interview with CNBC that the central bank could potentially lower interest rates multiple times this year if inflation continues to ease as he predicts. Waller mentioned that he anticipates the first rate cut could happen in the first half of the year, with additional cuts to follow if economic data on prices and unemployment remains favorable.

Waller emphasized that the decision to cut rates would be data-driven, stating, “As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening sooner than maybe the markets are pricing in.” He also mentioned that the number of rate cuts would depend on the progress made, with the possibility of three or four cuts in quarter percentage point increments.

Following Waller’s remarks, traders adjusted their expectations for rate cuts, with market-implied odds for a May move rising to about 50%. There was also an increase in expectations for a second reduction by the end of the year, climbing to about 55%. Waller’s optimism for easing is rooted in his belief that inflation will continue to decrease throughout the year, despite recent data showing some stickiness in key prices.

The Federal Open Market Committee (FOMC) is set to meet on January 28-29, with Waller indicating that there is no rush to make any immediate decisions. While FOMC members had previously projected two rate cuts for 2025, Waller’s remarks suggest a cautious and patient approach to monetary policy.

Overall, Waller’s outlook for rate cuts is contingent on economic data and the trajectory of inflation. The central bank will continue to monitor these factors closely in the coming months to determine the appropriate course of action.