Top Fed official leans towards December rate cut but inflation worries persist

Influential Fed governor's remarks come during major week for central bank's watchers

Federal Reserve governor Christopher Waller. Bloomberg

A top official at the US Federal Reserve on Monday said he is leaning towards cutting interest rates when the Fed meets this month, but he is keeping his options open due to recent trends in inflation.

“Based on the economic data in hand today and forecasts that show that inflation will continue on its downwards path to 2 per cent over the medium term, at present I lean towards supporting a cut to the policy rate at our December meeting,” Federal Reserve governor Christopher Waller told the George Washington University in Washington.

His remarks come two weeks before the Fed's December 17-18 meeting. Futures markets anticipated chances of about 80 per cent that the Fed will cut rates by 25 basis points after Mr Waller's comments, up from 62 per cent earlier on Monday, data from the CME Group showed.

Mr Waller, a permanent voting member on the rate-setting Federal Open Market Committee, noted that while he supports another rate cut, his decision could change if data in the next two weeks “surprises to the upside”.

He said he was chiefly concerned about trends in inflation, which showed that the central bank's flight in taming it could be “stalling”.

The Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, increased 2.3 per cent in October while core prices rose 2.8 per cent, still above the Fed's long-term 2 per cent target.

A separate inflation metric – the Consumer Price Index – rose 2.6 per cent on an annual basis in October while core inflation also rose to 3.3 per cent year on year.

“Overall, I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out, yet it keeps slipping out of my grasp at the last minute,” Mr Waller said, referring to Mixed Martial Arts.

“But let me assure you that submission is inevitable – inflation isn't getting out of the octagon,” he said in sentiments similar to other Fed officials who have vowed to bring inflation back down to 2 per cent.

Mr Waller said while the recent trend shows progress in taming inflation may be “stalling”, he emphasised it is “not a certainty”.

His comments began a major week for Fed watchers as several members of the central bank were due to speak before their blackout window – the period in which they are forbidden to publicly speak on policy – begins on December 7.

Fed chairman Jerome Powell was due to speak in a moderated discussion in New York on Wednesday. New York Fed president John Williams, another influential voice and permanent voting FOMC member due to the bank's proximity to Wall Street, was due to speak later on Monday.

Two other Fed governors – Adriana Kugler and Michelle Bowman – are scheduled to speak on Tuesday and Friday, respectively.

A batch of economic data will also be made available in the coming weeks, which the central bankers will be poring over when they next meet.

Chief among those will be the November jobs report, due on Friday, which is expected to show the US added 200,000 jobs while the unemployment rate slightly increased from 4.1 to 4.2 per cent.

The Labour Dpartment will also release wholesale inflation and CPI inflation data next week, while the Fed is due to release its beige book of economic conditions on Wednesday.