Federal Reserve Governor Advocates for Immediate Interest Rate Cuts
On Wednesday, Federal Reserve Governor Christopher Waller urged for immediate cuts to interest rates, suggesting that inflation has eased and the labor market may be weaker than it seems.
During an event with the Manhattan Institute in New York, Waller expressed his support for a 25 basis point reduction in federal funds rates at the upcoming central bank meeting. He pointed to inflation indicators he believes are hitting targets around a slowdown in economic growth, a drop in private sector job creation, and the need to disregard the impacts of tariffs.
“We think there’s sufficient evidence to justify reductions in the targeted range at the FOMC meeting in July,” he stated, mentioning that further cuts might also be appropriate later in the year.
According to Waller, the current monetary policy is “restrictive,” with real interest rates estimated to be between 125 and 150 basis points higher than neutral. “This level of policy strength was suitable in 2022 and 2023,” he noted. “But in my view, that’s not necessarily a guarantee anymore.”
Waller specifically addressed the influence of tariffs in recent inflation data, asserting they are not likely to spark ongoing price pressures. “The recent increase in tariffs is more of a temporary bump in price levels rather than a persistent inflation source,” he remarked. “If inflation expectations stay stable—and I think they are—normal monetary policy principles suggest we should consider adjustments in these relative prices.”
This viewpoint aligns closely with the argument from the Trump administration that tariffs might cause temporary price increases but aren’t indicative of enduring inflationary pressures. While Federal Reserve Chair Jerome Powell emphasizes the inflationary risks posed by tariffs, Waller’s comments imply growing internal support within the Fed for a broader interpretation.
Waller contended that the economic landscape has changed considerably from the conditions that warranted higher interest rates in recent years. He observed that GDP growth slowed to roughly 1% in the second quarter, indicating a softening in both consumer spending and business investment. “The growth in personal consumption expenditures has decreased,” he stated, noting that while consumption was strong in early 2024, it has significantly slowed in recent months.
On the labor front, Waller expressed concerns about the apparent strength of employment data masking fundamental weaknesses. He cited an increase in private payroll employment of just 74,000 in June, which is below what is typically expected. He also pointed out a notable early indicator of a looser labor market: a drop in the weekly average hours worked and a slowdown in wage growth over the past year.
“I think the labor market is either at stall speed or very close,” Waller remarked, cautioning that delaying cuts until September could leave the Fed “lagging the curve.”
While he hasn’t made a final decision and intends to consider forthcoming data, Waller indicated that the current data coming in for July supports action. “The FOMC believes that we can lower the target range for federal funding rates at the end of the July meeting,” he added.
The market interpreted his speech as a strong indication favoring short-term easing. Traders reacted by raising expectations for July cuts, while the Treasury market showed signs of moderation.
Additionally, Waller’s comments contribute to speculation about the future leadership of the Fed. Jerome Powell’s term is set to expire in early 2026, and some from the Trump administration have criticized him for not easing past policies. Although Waller didn’t specifically address personnel issues, his speech may resonate more closely with White House perspectives compared to recent comments from Powell and other officials.
“If the economy progresses as I’d anticipate,” Waller concluded.
