Federal Reserve officials suggest potential rate cuts if inflation keeps decreasing, shifting market expectations for 2024.

Waller said that one key measure of inflation has been near that target for most of the last eight months. The next report on this will come out at the end of January, right after the Fed’s next meeting. Analysts are hopeful that the core inflation rate might even dip below 2% annually.
He’s optimistic about this trend continuing and thinks we could see rate cuts in the first half of the year. Waller mentioned that if inflation stays low and the job market remains strong, we might see cuts as soon as March. This is a shift from what many investors were expecting, which was a longer pause on rate cuts.
After Waller’s comments, investors started to think that two rate cuts might be more likely, with the first one possibly happening in May. Bond yields dropped as a result. Some analysts are looking at strong retail sales and low unemployment, suggesting that the economy isn’t as restricted as previously thought.
Waller also noted that while the economy is doing well, it’s not overheating. He’s keeping an eye on how the new administration’s policies might affect inflation, but he doesn’t expect tariffs to have a lasting impact. Overall, it seems like the Fed is trying to balance strong economic data with the need for lower inflation.