Fed Governors Say No More Rate Cuts Until Inflation Falls

Regional governors at the Federal Reserve on Monday poured cold water on hopes for more rate cuts. 

Michelle Bowman and Christopher Waller, members of the Federal Reserve's board of governors, gave separate speeches Monday during which they said that slow progress on getting inflation down to the Fed's 2% target rate is forcing the central bank to keep rates where they are. 

“I would like to gain greater confidence that progress in lowering inflation will continue as we consider making further adjustments to the target range,” Bowman said in a speech at the American Bankers Association, CNBC reported.

January’s inflation numbers came in higher than analysts expected, with the consumer price index rising 50 basis points from the end of 2024. It now sits at 3%. 

New numbers haven’t been released for the personal consumption expenditures index, the Fed’s preferred inflation metric. But the index rose 30 basis points in December to 2.6%, its second month of upward movement.

“I continue to see greater risks to price stability, especially while the labor market remains strong,” Bowman said.

She was joined by Waller, who spoke at the University of New South Wales in Australia on Monday. Waller said the Fed was concerned about resurgent inflation amid strong economic growth and rising wages, although forecasts for January PCE data weren't “as alarming as the CPI inflation data.” 

Their view of the economy is becoming increasingly common across the financial sector. The Federal Open Market Committee is projecting two cuts later this year totaling 50 basis points, but a growing number of analysts predict rates will stay flat, with some adding that a rate hike is also on the table.  

Waller said progress on inflation had been slower than expected and acknowledged that cuts to the Fed's target rate isn’t enough to overcome other macroeconomic trends that are keeping 10-year Treasury bond rates elevated, which leads to higher borrowing costs.

“Inflation is still meaningfully above our target, and progress has been excruciatingly slow over the last year,” Waller said.

“For now, I believe a pause in rate cuts is appropriate,” he added later. 

Fed Chair Jerome Powell announced a pause to rate cuts at the central bank’s meeting in late January. The decision to keep target rates flat between 4.25% and 4.5% followed three consecutive Fed meetings with cuts totaling a percentage point. 

Fed policymakers are navigating uncertain economic waters, with President Donald Trump’s new administration introducing tariffs and other policies that are widely expected to be inflationary. 

But Powell and the other Fed governors have avoided wading directly into politics with consistent messaging that their decisions are based on current economic data, not future projections. It isn't until the impacts of the policy changes percolate through the economy that the Fed will incorporate them into its policymaking, Fed officials frequently say. 

“We must keep in mind that there is always a degree of uncertainty about economic policy, and we need to act based on incoming data even when facing great uncertainty about the economic landscape,” Waller said during his speech. “We have done this in the past and will continue to do so in the future.”