Fed's Waller says rate cuts still possible this year

(Sharecast News) - Federal Reserve governor Christopher Waller has quashed speculation about possible interest-rate hikes later in the year, but said caution was warranted amid ongoing developments in the Middle East. In an interview with CNBC, the well-known dove said that the Fed's wait-and-see approach was the right call for now: "It doesn't mean that I'm going to stay put for the rest of the year. I just want to wait and see where this goes."

However, he added: "If things go reasonably well and the labour market continues to be weak, I would start advocating again for cutting the policy rate later this year."

He said he "[doesn't] think there's a need for rate hikes", with inflation expected to ease, possibly as soon as the third quarter.

"If we get another 90,000 jobs decline in the next jobs report, that'll be like four negative reports out of five. To me, that's not [net] zero. So at that point, you need to start thinking about this labour market isn't good. [...] I don't think this war is going to help in any way going forward, but we'll have to see what happens with inflation."

Odds of a rate increase rose sharply on Friday, as two-year Treasury yields continued to rise, with the market now pricing in a 10% chance of a hike next month, compared with 6% and 0% over the preceding two days. Overnight swaps showed a 20% chance of a hike by October.

Chances of a near-term cut have mostly disappeared, which compares with projections at the start of the year of two to three cuts in 2026.

Fed chair Jerome Powell acknowledged at the Federal Open Market Committee's press conference on Wednesday that higher energy prices would increase inflationary pressures, but it was "too soon to know the scope and duration of the potential effects on the economy".