Fed Governor Waller says inflation softening faster than he expected put him in half-point-cut camp

Federal Reserve Governor Christopher Waller said Friday he supported a half percentage point rate cut at this week's meeting because inflation is falling even faster than he had expected.

Citing recent data on consumer and producer prices, Waller told CNBC that the data is showing core inflation, excluding food and energy, in the Fed's preferred measure is running below 1.8% over the past four months. The Fed targets annual inflation at 2%.

"That is what put me back a bit to say, wow, inflation is softening much faster than I thought it was going to, and that is what put me over the edge to say, look, I think 50 [basis points] is the right thing to do," Waller said during an interview with CNBC's Steve Liesman.

Both the consumer and producer price indexes showed increases of 0.2% for the month. On a 12-month basis, the CPI ran at a 2.5% rate.

However, Waller said the more recent data has shown an even stronger trend lower, thus giving the Fed space to ease more as it shifts its focus to supporting the softening labor market.

A week before the Fed meeting, markets were overwhelmingly pricing in a 25 basis point cut. A basis point equals 0.01%.

"The point is, we do have room to move, and that is what the committee is signaling," he said.

The Fed's action to cut by half a percentage point, or 50 basis points, brought its key borrowing rate down to a range between 4.75%-5%. Along with the decision, individual officials signaled the likelihood of another half point in cuts this year, followed by a full percentage point of reductions in 2025.

Fed Governor Michelle Bowman was the only Federal Open Market Committee member to vote against the reduction, instead preferring a smaller quarter percentage point cut. She released a statement