Federal Reserve within striking distance of US inflation goal, top official says

Federal Reserve governor Christopher Waller expects central bank will be able to lower interest rates this year

Christopher Waller, the Federal Reserve governor, is optimistic the US central bank is close to bringing inflation down to its long-term target. Bloomberg

The Federal Reserve is close to achieving its long-term inflation target, a senior official has said, as the central bank begins to pivot to when it may cut interest rates.

Recent economic data has shown the Price Consumption Expenditures (PCE) Price Index has fallen to 2.6 per cent, with core inflation down to 3.2 per cent. Economic growth is projected to have grown somewhere between 1 and 2 per cent in the fourth quarter of last year.

Meanwhile, the labour market has been cooling without a sharp increase in unemployment.

“For a macroeconomist, this is almost as good as it gets,” Federal Reserve governor Christopher Waller said during a snowed-out Brookings Institution seminar in Washington on Tuesday.

Mr Waller, one of the permanent members of the Federal Reserve board of governors who vote on monetary policy decisions, noted PCE inflation had been running closer to 2 per cent over the past six months, which is near the Fed's long-term goal.

“Based on economic activity and the cooling of the labour market, I am becoming more confident that we are within striking distance of achieving a sustainable level of 2 per cent PCE inflation,” he said.

With the economy moving towards soft-landing territory, the Fed has pivoted to when it will begin cutting interest rates and by how much. Traders expect the 5.4 per cent rate to decline from March but Mr Waller said the timing and number of rate cuts would be determined by data.

December projections released by the Fed forecast three cuts this year to bring down its rate range to 4.25 per cent and 5.0 per cent.

“I see no reason to move as quickly or cut as rapidly as in the past,” he said, echoing previous Fed statements that rates will be held at an elevated level for a prolonged spell.

The Fed holds its first policy meeting of the year on January 30 and 31.