Fed’s Waller: We’re at a point where the economy is strong and we want to keep it that way

• The economy is strong and inflation is coming down
• I was open to the idea that we could front-load and the inflation data during blackout pushed me in that direction
• CPI and PPI will feed into core PCE; which will be somewhere around 0.14%
• Over the last four months, core PCE running at 1.8% with very high housing-services inflation
• If you strip out housing services, core PCE would be running under 1% over the past four months
• I can think of several scenarios that will determine the pace of cuts. If it’s fine you can imaging going 25 bps
• If data comes in softer, you can see going at a faster pace
• We could even pause depending on the data
• What’s got me more worried is that inflation is running softer than I thought
• If the data comes in soft, I would be much more willing to be aggressive on rate cuts
• We’re doing exactly what we thought at the start of the year, it just took longer because of Q1 high inflation
• Inflation has reversed on us before, it could reverse again
• Inflation is on the right path as long as we don’t let it get too low
• Don’t hear a lot of firms saying they have pricing power

Quotable:

“The committee sees a lot of room to move down over the next 6-12 months. That’s really what we should be focusing on.”

This is some dovish stuff from a guy who often delivers a more-hawkish message.

This article was written by Adam Button at www.forexlive.com.