Progress in taming inflation has likely resumed, US Fed official says

Report on April inflation a 'welcome relief', but more data is needed before any move to lower interest rates

Federal Reserve governor Christopher Waller. Bloomberg

US government data shows the Federal Reserve's progress in taming inflation has “likely resumed”, although a US central bank official said it was not yet enough to warrant cutting interest rates.

Federal Reserve governor Christopher Waller made the remarks on Tuesday after a report last week showed annual inflation had declined for the first time in three months in April.

After a first quarter in which progress in bringing inflation back down to the Fed's 2 per cent target had stalled, the Consumer Price Index (CPI) report was a “welcome relief” and showed that progress “has likely resumed”, he said.

“That said, the progress was so modest that it did not change my view that I will need to see more evidence of moderating inflation before supporting any easing of monetary policy,” Mr Waller said at the Peterson Institute for International Economics in Washington.

Fed officials in March forecast three rate cuts this year, but are now being more cautious on offering a potential timetable. Mr Waller said he needed to see “several months” of inflation data before he is prepared to support dialling back on policy. However, he largely ruled out a potential rate increase.

Traders expect the first US rate cut to come in September. The UAE and Saudi Arabia, whose central banks follow the Fed's decisions, would also probably cut rates at that time.

Mr Waller also said the current rate range, which sits between 5.25 and 5.50 per cent, is helping to cool demand. He also noted a rise in credit card and car loan delinquencies, as well as downward revisions in retail sales.

The Fed official said the labour market was also moving into better balance, referring to slower job creation in April and job vacancies moving down close to their pre-pandemic level.

Other Fed officials also suggest it is too soon to begin considering cutting interest rates, even after April's inflation report. Although he called the report “encouraging”, Fed Vice Chair Philip Jefferson said its preferred inflation metric rose 4.1 per cent over the past four months, well above their 2 per cent target.

“It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting,” he said in New York on Monday.

The Fed's Vice Chair for Supervision, Michael Barr said first-quarter readings did not give him the “increased confidence” to support dialling back on policy, although he also suggested a rate increase would not be appropriate.

The Fed holds its next two-day meeting from June 11-12, where it will also update its economic projections.