Federal Reserve Governor Christopher Waller stated on Monday that future rate cuts will not be as substantial as the significant reduction in September. He believes that the U.S. economic growth rate may still be higher than expected.

Waller cited recently released reports on employment, inflation, Gross Domestic Product (GDP), and income, noting that "these data suggest that the economic slowdown may not be as severe as anticipated."

"While we do not want to overreact or overinterpret these data, I believe the overall data indicate that monetary policy should be more cautious in the pace of rate cuts than it was at the September meeting," Waller said in a speech prepared for a conference at Stanford University.

Recently released U.S. economic data has been mixed. After weakening in the summer, the labor market was unexpectedly strong in September, the Consumer Price Index (CPI) inflation indicator was slightly higher than expected, and GDP remained robust.

Recently, the U.S. Department of Commerce also revised the second quarter's Gross Domestic Income (GDI) growth rate up to 3.4%, revising it up by 2.1 percentage points from the previous estimate, bringing it closer to the GDP growth rate. The savings rate was also significantly revised up to 5.2%.

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Waller said, "These revisions indicate that the economy is much stronger than previously thought, and there are almost no signs of a significant slowdown in economic activity."

Calls for gradual rate cuts over the next year

The Federal Reserve took an unusual step at its September meeting, significantly lowering the benchmark interest rate by 50 basis points to a target range of 4.75% - 5.00%. In the past, the Federal Reserve has only done this during crisis periods because the central bank tends to adjust interest rates in increments of 25 basis points.

Federal Reserve officials also indicated that there may be another 50 basis point rate cut at the last two meetings of 2024 and another 100 basis point rate cut in 2025. However, Waller did not commit to a specific path for future rate cuts.

"No matter what happens in the near term, my baseline is still to gradually lower the policy rate over the next year," he said.The market had previously anticipated that the Federal Reserve would continue to cut interest rates by 50 basis points in November. However, with the strong performance of the U.S. non-farm data in September, coupled with the CPI exceeding expectations, investors are now betting that policymakers will cut rates by 25 basis points at that time.

According to the Federal Reserve Watch tool from the Chicago Mercantile Exchange, traders currently estimate that there is an 86.5% chance of a 25 basis point rate cut in November, a 13.5% chance of no rate cut, and a 0% chance of a 50 basis point rate cut.

Minneapolis Federal Reserve Chairman Kashkari also stated on Monday that it might be appropriate to continue with moderate rate cuts in the next few quarters.