Fed's Waller: Policy Nearing Neutral, Limited Room for Easing

Federal Reserve Governor Christopher Waller delivered a speech on Thursday, clearly stating that the current monetary policy stance is "closer to neutral than moderately restrictive," and noting that in this context, the room for further policy easing is "limited," provided that the policy does not become "excessively accommodative."

Waller emphasized, "Looking ahead, we need to proceed with caution." He pointed out that the current inflation rate remains as high as 3%, significantly above the Fed's long-term 2% target. Therefore, "it is necessary to maintain pressure on above-target inflation" while also balancing support for the labor market.

Although he previously supported interest rate cuts to protect the job market, Waller stated that as the economy shows "considerable resilience," policymakers must seek a balance between controlling inflation and stabilizing employment. He expects the labor market to "remain near full employment, potentially slowing slightly," and that while the economy may show weakness in the fourth quarter, "a rebound is expected in the first quarter of next year, reaching or exceeding potential levels."

Regarding the inflation outlook, Waller predicted that, assuming "appropriate monetary policy is implemented," inflation will "begin to decline starting in the second half of next year." He also mentioned that price pressures from tariffs are expected to subside around the same time.

On financial conditions, Waller stated that "the banking system is in good condition," and noted that "very accommodative financial conditions and regulatory easing are positive factors." However, he also cautioned that, apart from data center-related investments, "investment in other areas has been relatively sluggish," and that due to uncertainty, companies "are scaling back hiring."

Regarding the impact of recent technological changes, Waller said that artificial intelligence is indeed "replacing workers while improving productivity," but he suspects that "most of the announced layoffs are unrelated to AI and are more likely due to ordinary automation technologies."