The Fed signals cautious interest rate cuts despite robust economic growth.

The robust U.S. economy and mixed inflation data suggest a more moderate approach to interest rate cuts following a substantial reduction by the central bank last month, a leading Federal Reserve official stated on Monday. Christopher Waller, a Fed Governor, clearly expressed the current monetary strategy during an event at the Hoover Institution at Stanford University. According to his prepared remarks, monetary policy measures should now be approached more cautiously than at the September meeting. At the last meeting, the Fed had cut its key interest rate by a substantial 0.5 percentage points to a range of 4.75 to 5 percent to recalibrate monetary policy in light of declining inflation and slowing job growth. However, this approach is increasingly being questioned. Recently, robust consumer price data indicated that certain inflationary pressures persist, maintaining its slow downward trend. Despite progress in the fight against inflation over the past year and a half, this development is disappointing and unwelcome, Waller noted. A strong employment report showed that 254,000 jobs were added in September, indicating a healthy employment environment. Waller emphasized that the economic growth in the U.S. is not experiencing a significant slowdown. His remarks also reflect the position of John Williams, President of the New York Fed, who last week advocated for a gradual adjustment to a neutral interest rate level. According to current Fed projections, two more interest rate cuts of 0.25 percentage points each could be on the agenda this year — a perspective Williams considered solid. Neel Kashkari, President of the Minneapolis Fed, also supported moderate rate cuts, though he noted that every decision is data-dependent. However, upcoming reports could be distorted by recent hurricanes and a labor strike at Boeing, Waller warned. For the upcoming employment report, which will be released shortly before the U.S. presidential election and during the Fed's quiet period before its next meeting, Waller forecasted a 'significant but temporary job loss' with a decline in employment growth of more than 100,000 positions. Despite everything, he expressed confidence that the Fed could steer inflation toward the 2 percent target without endangering the healthy labor market, thus there is little concern about an impending recession.