Inflation Trends in the US

Investing.com – Inflation in the US is expected to cool toward the Federal Reserve’s 2% target level, providing the central bank with room to reduce interest rates further, according to Fed Governor Christopher Waller.

In a speech on Wednesday, Waller noted that while easing in price gains appears to have “stalled” in the final months of 2024, he believes progress toward 2% will continue in the medium term.

Waller argued that it will be “appropriate” for Fed officials, who previously slashed rates by a quarter of a percentage point in December while signaling caution over future cuts, to implement more reductions.

> “As we saw a year ago when inflation briefly increased, progress has been uneven, but disinflation is more apparent if one smooths through the recent upticks,” Waller stated. He added that higher inflation readings from early 2024 will start to drop out of the monthly numbers in January, likely resulting in a “significant step-down” in the 12-month figures through March.

Later on Wednesday, minutes from the Federal Open Market Committee’s December meeting could offer more insights into how policymakers are considering further rate decreases, especially against the backdrop of incoming Trump administration tariff plans that cloud the broader economic outlook.

Uncertainty surrounding Trump’s trade and tax proposals has led some officials to view prospective rate cuts as if “driving on a foggy night or walking into a dark room full of furniture,” according to Fed Chair Jerome Powell’s comments in December.

After last month’s meeting, projections indicated that Fed officials now expect only 50 basis points in rate cuts this year, down from an anticipated full percentage point decline in September.

Analysts at Vital Knowledge remarked, “The Waller speech is actually dovish versus the present narrative, as he spends a lot of time expressing confidence in why the disinflationary process will continue.”