"Interest Rate Cut Nears"... US Fed Officials' Consecutive 'Dovish Remarks'

Waller Fed Director "Rate Cut Getting Closer"
Williams New York Fed President "Disinflation Imminent"
Wall Street Expects Two Rate Cuts This Year Starting in September

Officials of the U.S. Federal Reserve (Fed) have consecutively made remarks suggesting that the timing for a benchmark interest rate cut is approaching. Following Fed Chair Jerome Powell, other Fed officials have hinted at a shift in monetary policy, adding weight to expectations of a rate cut in September. Wall Street anticipates that the Fed will initiate a pivot at the September meeting and cut rates more than twice within the year.

On the 17th (local time), Christopher Waller, a Fed Governor, attended an event at the Federal Reserve Bank of Kansas City and stated, "While we have not yet reached our final destination, we are getting closer to the point where we need to lower the policy rate."

He described current inflation indicators as "very favorable" and said, "We can expect a rate cut in the near future." He added, "Current data align with achieving a soft landing," and explained, "We will look for data in the coming months that support this view."

Waller also emphasized that the Fed is shifting the focus of its policy not only toward price stability but also toward achieving full employment. He said, "The risk of rising unemployment is greater than what we have observed for a long time," and added, "We will pay close attention to employment, which is also a central bank mandate."

Given that Waller, who holds voting rights on the Federal Open Market Committee (FOMC) rate decisions, is classified as a 'moderate hawk' (favoring monetary tightening) within the Fed, his remarks are interpreted as signaling an imminent policy change. Earlier, on the 15th, Fed Chair Jerome Powell also expressed growing confidence that inflation is moving toward 2%, indicating an intention to begin rate cuts before reaching the 2% target.

John Williams, President of the Federal Reserve Bank of New York, often regarded as the Fed's second-in-command, also hinted that the Fed could soon start cutting rates. Unlike other regional Fed presidents, the New York Fed president holds a permanent voting seat on the FOMC.

In an interview with The Wall Street Journal (WSJ) the previous day, Williams evaluated recent inflation data over the past three months as "increasingly close to the disinflation trend we are looking for," calling it a "positive signal."

The U.S. Consumer Price Index (CPI) rose through March this year but has been declining in the second quarter. The CPI inflation rate dropped from 3.5% in March to 3.4% in April, 3.3% in May, and 3.0% in June. Additionally, the overheated labor market is showing signs of cooling.

Williams said, "Various inflation measures are all moving in the right direction and are quite consistent," adding, "I want to see more data that can give us additional confidence that inflation is sustainably moving toward the 2% target. We will actually learn a lot between July and September."

Wall Street expects the Fed to use the two months before the September FOMC meeting to further verify inflation and employment indicators, laying the groundwork for rate cuts. The market has already priced in a rate cut in September and expects the Fed to lower rates more than twice within the year.

According to the Chicago Mercantile Exchange (CME) FedWatch on the day, the federal funds futures market reflects a 96.2% probability that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting. The probability of a cut of 0.5 percentage points or more in November is 59.4%, and the probability of a 0.5 percentage point or greater cut in December is 94.2%.