ISTANBUL

The US Federal Reserve is getting closer to an interest rate cut as inflation is slowing, Fed Governor Christopher Waller said Wednesday.

"In the second quarter, data on inflation and the labor market moderated in a way that suggests progress toward price stability has resumed," he said during a speech at the Federal Reserve Bank of Kansas City in Missouri.

"The data over the past couple months shows the economy growing at a more moderate pace, labor supply and demand apparently in balance, and inflation slowing from earlier this year," he added.

The consumer price index (CPI) annually rose 3% in June, slowing from May’s 3.3% year-on-year increase, according to the Labor Department's latest figures. The CPI fell 0.1%, also showing a slowdown from May when there was no change.

"I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view," said Waller. "So, while I don't believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted."

The Fed governor expects three possible scenarios about inflation for the second half of the year, as he explained how they would affect his view of the appropriate stance of monetary policy.

The first scenario, the optimistic one, includes to continue receiving more favorable CPI inflation data, which would pave the way for a rate cut "in the not-too-distant future."

In the second scenario, less optimistic but more probable to occur, inflation data comes in uneven -- not as good as the previous few months but still consistent with progress on bringing inflation down toward 2% goal. "In this case, a rate cut in the near future is more uncertain," he said.

And the third scenario, pessimistic but low probability, assumes a resurgence in inflation in the second half of the year that would make it "tough to conclude we were making sustainable progress on inflation this year," he added.

"These scenarios highlight that the data will influence how my confidence in inflation returning sustainably to 2% could evolve over time. And this will then influence my view of the appropriate path of policy," said Waller, who has voting rights in the Federal Open Market Committee’s monetary policy decisions in 2024.