Fed governor Chris Waller said Tuesday he favors holding interest rates steady for longer and needs to see several more months of favorable inflation data before lowering rates.
"While the April inflation data represents progress, the amount of progress was small," Waller said in a speech in Washington.
"In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy."
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Waller said the latest April reading from the Consumer Price Index was a "reassuring signal" but also gave it a C+ grade, calling the easing "so modest" it didn’t change his view that more evidence of cooling inflation is needed.
CPI on a "core" basis, which strips out food and energy prices, rose 3.6% year over year, a cooling from the 3.8% increase seen in March. That followed a first quarter where the readings were consistently hotter than expected.
The Fed's goal is to get inflation down to 2%.
Waller became the latest central bank official to stress a higher-for-longer stance.
Fed Vice Chair Philip Jefferson and Fed Vice Chair for Supervision Michael Barr Monday both called for holding rates where they are, allowing more time for restrictive policy to work.
Fed Chair Jerome Powell made it clear last week that he thinks the Fed will need more than a quarter's worth of data to really make a judgment on whether inflation is steadily falling toward 2%. Waller appears to want more, noting he would like to see “several” months of data.
That implies it will take more than three inflation reports for the Fed to feel confident about lowering rates from a 23-year high, putting the odds on a first rate cut in September at the earliest if the data supports such a move.
Investors are pricing in just over 50% odds for a September rate cut, with dwindling odds for a second rate cut after that.
Waller on Tuesday said data on consumer spending and the job market suggest rates are at appropriate levels now to push down inflation and he thinks increases in rates are “probably unnecessary.”
Waller expects the economy to moderate based on the latest economic data over the past month.
He pointed to real GDP that slowed to 1.6% in the first quarter, retail sales that were flat in April and revised down in the previous two months, and credit card and auto loan delinquency rates that have risen above their pre-pandemic levels.
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