What’s Next for Rate Cuts? The Fed Is Watching Jobs and Prices.

Having made their first interest rate cut in more than four years this week, Federal Reserve officials are keeping their options open as they try to figure out how rapidly to lower borrowing costs in the months ahead.

Fed officials could lower interest rates in standard quarter-point increments if the data continue to look “fine,” Christopher J. Waller, a Fed governor, suggested in a CNBC interview on Friday. If inflation were to pick back up, Fed policymakers could hold rates steady.

And if the job market cools more than expected or if inflation comes in weaker than expected, the Fed could reduce interest rates more rapidly.

“If the data starts coming in soft and continues to come in soft,” Mr. Waller said in the interview, he would be willing “to be aggressive on rate cuts to get inflation closer to our target of 2 percent.”

Central bankers appear to be poised to lower borrowing costs much more quickly than most economists had expected as recently as a month or two ago. That has left some questioning what prompted the Fed’s pivot toward a more proactive path. And the Fed’s decision to cut rates by a larger-than-usual half point this week has many investors wondering whether other large moves could be on the table.

Mr. Waller’s remarks offer insight into the Fed’s thinking at a critical juncture. Policymakers are trying to bring interest rates — which they lifted rapidly starting in 2022 and have left at a high level since 2023 — back toward a more normal setting, at which the rates no longer weigh so heavily on the economy. But how rapidly to do that is a challenging question.