Christopher Waller, a Federal Reserve Governor, suggested on Monday that future interest rate cuts might be less aggressive than anticipated due to concerns about the U.S. economy’s continued strength. Speaking at a conference at Stanford University, Waller expressed caution, stating that recent economic data indicates that the economy may not be cooling as much as expected.

Economic Data Indicates Persistent Strength

Waller cited key economic indicators such as employment, inflation, gross domestic product (GDP), and income growth as reasons for the Federal Reserve to proceed cautiously when adjusting monetary policy. “The data suggests that the economy may not be slowing as much as desired,” he said, emphasizing the need for a more measured approach to future interest rate reductions.

While the Federal Reserve’s September meeting resulted in an unusual decision to cut the baseline interest rate by 50 basis points to a target range of 4.75% to 5.00%, Waller indicated that similar aggressive cuts might not be on the horizon. Typically, the Fed prefers to adjust rates in smaller increments, usually 25 basis points, unless faced with an economic crisis.

Fed’s Future Rate Cut Plans in Question

Despite the significant cut in September, Federal Reserve officials had hinted at the possibility of further reductions. They projected another 50 basis points in rate cuts across the final two meetings of 2024, followed by a full percentage point reduction in 2025. However, Waller refrained from making firm commitments, stating that the path ahead would depend on evolving economic conditions.

“While my baseline outlook still calls for gradually reducing the policy rate over the next year, it’s important not to overreact to short-term data,” Waller explained.

Mixed Signals from Recent Economic Data

Recent economic data has been inconsistent, with some indicators showing stronger-than-expected performance. The labor market saw an uptick in job growth in September after a period of weakening, while the consumer price index (CPI) recorded higher-than-expected inflation. GDP has also remained robust, suggesting the economy is still running at a solid pace.

In addition to these figures, the Commerce Department revised its second-quarter GDP growth estimate upward to 3.4%, a significant increase from its previous estimate of 2.1%. Gross domestic income was also revised, along with a sharp rise in the savings rate, which was adjusted to 5.2%.

“These revisions show that the economy is stronger than we previously believed, with little evidence of a substantial slowdown,” Waller said.

Cautious Approach Moving Forward

Waller’s comments reflect the Federal Reserve’s current cautious stance as it navigates an economy that appears more resilient than expected. With inflation still slightly above target and growth remaining strong, the central bank is wary of moving too quickly on rate cuts. Waller emphasized that while the Fed remains committed to achieving long-term stability, it will proceed carefully in its decision-making.

As the Federal Open Market Committee prepares for its final two meetings of 2024, all eyes will be on the upcoming data to see whether Waller’s cautious approach is echoed by other policymakers.